Secondary Buyouts

This paper examines the effects of a Private Equity (PE) firm’s specialized investment strategy on the post-secondary buyout (SBO) operating performance of the portfolio company. SBOs are financial transactions in which both the buyer and seller are PE firms. The rise of SBOs has raised several concerns regarding value creation in these transactions. Previous research found that the returns of SBOs are significantly lower than primary buyouts (PBOs). Segmentation of the lead PE firm can generate insight which transactions create value. Practitioners found that specialization has positive effects on operating profitability in PBOs. Our study contributes to existing literature by examining the portfolio company’s post-SBO performance with regards to a PE firm’s specialization strategy based on industry and geographic region. The sample in this study contains 115 SBOs of UK-based portfolio companies during the period 2007 to 2012. We find that industry specialization enhances post-SBO operating profitability whereas a specialized focus on geographic region does not improve post-SBO profitability. Additionally, we find no statistically significant results regarding a specialized investment strategy on post-SBO turnover growth