What Is a Secondary Buyout?
A secondary buyout (SBO) — also called a sponsor-to-sponsor deal — is an M&A transaction in which a private equity firm sells one of its portfolio companies to another private equity firm. The transaction is “secondary” because the PE ownership is being transferred for a second time (the initial PE acquisition was the primary buyout). If a company is sold to a third PE firm, it is sometimes called a tertiary buyout.
Secondary buyouts have become one of the most significant exit channels for PE firms, accounting for approximately 40-50% of all PE-backed exits by deal count in recent years. They reflect the maturation of the PE industry and the depth of capital available to fund acquisitions at every stage.
Why Secondary Buyouts Happen
Seller Perspective (Exiting PE Firm)
- Fund lifecycle — the PE fund is approaching its termination date and must exit investments to return capital to limited partners
- Return target met — the firm has achieved its IRR and MOIC targets and wants to lock in returns
- Strategic limitations — the current sponsor has exhausted its value creation playbook and a new sponsor can bring fresh capabilities
- Market timing — favourable credit markets or valuation multiples make the current moment optimal for exit
Buyer Perspective (Acquiring PE Firm)
- Proven business — the company has been professionalized and scaled by the previous sponsor
- Clear value creation plan — the buyer identifies specific levers (add-on acquisitions, geographic expansion, digital transformation) that the seller did not pursue
- Available capital — the buyer has dry powder that needs to be deployed
- Lower risk — PE-backed companies typically have better financial reporting, governance, and management than founder-run businesses
The Debate: Value Creation or Value Transfer?
Secondary buyouts generate debate in the PE industry:
| View | Argument |
|---|---|
| Sceptics | SBOs transfer value between PE firms rather than creating it; the company is already optimised |
| Proponents | Different sponsors bring different capabilities; each creates incremental value |
| Evidence | According to Bain & Company, SBOs generate returns comparable to primary buyouts, suggesting genuine value creation |
Value Creation in SBOs
Common value creation levers for the second sponsor:
- Bolt-on acquisitions — the first sponsor may not have had the appetite or capability for add-on M&A
- International expansion — a globally networked sponsor can take the business into new markets (including APAC)
- Technology investment — digital transformation capabilities that the first sponsor lacked
- Multiple expansion — repositioning the company for a strategic sale or IPO rather than another PE exit
- Scale-up — the second sponsor may manage larger funds and can support bigger growth initiatives
Structuring SBOs
Management Rollover
Management teams typically roll over a portion of their equity from the selling sponsor’s structure into the buying sponsor’s structure:
- Provides continuity and alignment
- Rollover percentage negotiated (typically 25-75% of management’s proceeds)
- New equity incentive plan established with the buying sponsor
Financing
SBOs are typically financed with a new LBO capital structure:
- New senior debt and high-yield facilities (the selling sponsor’s acquisition debt is fully repaid)
- The buying sponsor’s equity contribution
- Management rollover equity
APAC Context
Australia — secondary buyouts are well-established in the Australian PE market. Australian PE firms (and global firms operating in Australia) regularly acquire portfolio companies from other sponsors, particularly in healthcare, business services, and consumer sectors.
Japan — SBOs in Japan have increased as the Japanese PE market matures. Global PE firms acquiring portfolio companies from earlier-stage Japan-focused funds is a common pattern, with the second sponsor often bringing international expansion capabilities.
India — SBOs in India are growing as the PE market deepens. The increasing number of PE-backed Indian companies reaching the 5-7 year hold period creates a pipeline of secondary buyout opportunities.
According to Preqin data, secondary buyouts account for approximately 40-50% of PE-backed exits globally, making them the single largest exit channel ahead of strategic sales and IPOs.
“Secondary buyouts are not a sign of PE running out of ideas — they are a sign of a maturing market where specialised sponsors add value at different stages of a company’s development,” notes Daniel Bae, founder of Amafi. “In APAC, where PE markets are at varying stages of maturity, SBOs are becoming an increasingly important part of the deal landscape.”
Evaluating PE exit opportunities across Asia Pacific? Amafi helps companies and investors navigate exit strategies and deal processes. Learn more.