Private Equity Lemons?Evidence on Value Creation in Secondary Buyouts

This paper analyses whether secondary buyouts have a value creation profile and offer equity returns different from those of primary buyouts. Using a sample of 2,456 buyout transactions (including 448 secondary buyouts), we find no evidence that secondary buyouts generate lower equity returns or offer fundamentally lower operational value creation potential. However, we can show that secondary buyouts obtain 28-30% more leverage than primary buyouts, even after controlling for debt market conditions. Furthermore, we find evidence that secondary buyouts are 6-9% more expensive than other buyouts.