Fund Managers under Pressure: Rationale and Determinants of Secondary Buyouts

Sridhar Arcot, Zsuzsanna Fluck, José-Miguel Gaspar and Ulrich Hege
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Sridhar Arcot: ESSEC Business School
Zsuzsanna Fluck: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
José-Miguel Gaspar: ESSEC Business School

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Abstract: During the last decade an increasing fraction of PE exits have been secondary deals, in which one PE fund sells their portfolio company to another PE fund. On a comprehensive sample of 9,771 LBO deals in the U.S. and in 12 European countries from 1980 to 2010, this paper investigates to what extent secondary deals are outcomes of opportunistic behavior of the sponsor or adverse incentives of the PE contract. We report evidence that a secondary deal is significantly more likely if either the buyer fund is under pressure to invest or if the seller fund is under pressure to exit. We measure deal pressure by the closeness to the end of the lifecycle/investment period of a fund, by its degree of inactivity or unused funds and by its lack of reputation. Deal pressure also has an impact on deal valuation: Buyers under pressure pay relatively more for the secondary deals that they enter into, while sellers under pressure are willing to accept lower prices for their portfolio firms in secondary buyouts. The latter effect in dominated by the former suggesting that sellers have more bargaining power in secondary transactions.

Keywords: leveraged buyouts; secondary buyouts; private equity; limited investment horizon (search for similar items in EconPapers)
Date: 2013-12
Note: View the original document on HAL open archive server: https://hal.science/hal-01453173v1
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Citations: View citations in EconPapers (1)

Published in Paris December International Finance Meeting - 11th International Paris Finance Meeting, Dec 2013, Paris, France. 52 p

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Related works:
Journal Article: Fund managers under pressure: Rationale and determinants of secondary buyouts (2015)
Working Paper: Fund Managers under pressure: Rationale and Determinants of Secondary Buyouts (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01453173

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