Despite what the sceptics may think, exit rates for secondary buyouts are almost identical to the exit rates for primary deals.
Data from the Centre of Management Buyout Research (CMBOR) shows that at 38%, the exit rate for secondary deals is not far behind the 43% rate for primary buyouts. The results, published by Barclays Private Equity, are based on secondary buyouts completed between 1996 and 2001.
The research also shows that the failure rate of secondary buyouts is not lower than that of primary deals. This is significant because secondary deals are generally perceived to be less risky, as the companies concerned have already passed through the hands of a private equity owner.
“Secondary buyouts are continuing to prove to be both a valuable deal source and exit route for private equity houses,” says Tom Lamb, managing director UK of Barclays Private Equity. “These figures show that it is not just a case of ‘‘pass the parcel’’, and this type of deal is as successful as primary deals.”
In 1994, the secondary buyout market was worth £92m, just 3% of the total buyout market. Four years later the share had grown tenfold, and secondary buyouts’’ share of market value has exceeded 10% for every year since 1998. During this period the average secondary deal value has been higher than that of primary deals.