18589: Strategic Value Creation or Exit in Private Equity: The Antecedents to Secondary Buyouts (session 25724)

Academic and practitioner work has noted the increasingly important role of Private Equity (PE) ownership, with initial research noting who PE buys from corporate buyers, and how they create value compared to corporate ownership. However, we know little about PE exit forms, or why they buy and sell to and from financial owners – a new exit form increasing in prevalence known as ‘Secondary Buyouts’ (SBOs). With little understanding of how and why PE create value, we explore how firms can aggregate specific ownership advantages from engaging in a particular exit route. By comparing SBOs, to alternate exits, we examine whether the owner choses to extend the temporal investment in a target to strategically create value or to succumb to timing pressures to sell. We use a novel dataset of 1,716 PE exits tracked from entry to exit, finding clear strategic, over pressure, drivers for SBOs – specifically the selection criteria and the ownership strategies used during the first PE ownership cycle have a large impact on the exit choice. This contributes to the literature on corporate governance, exit form, and value creation, to explore whether they provide an opportunity to bypass the market to appropriate additional value for the owner, or whether the value creation strategy is best practiced through additional rounds of financial ownership.

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