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Fund Managers under Pressure: Rationale and Determinants of Secondary Buyouts

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Arcot_2013_1610.pdf (389.6Kb)
Date
2013-05
Dewey
Economie financière
Sujet
leveraged buyouts; secondary buyouts; private equity; limited investment horizon
JEL code
G.G3.G35; G.G3.G32
Conference name
Paris December International Finance Meeting - 11th International Paris Finance Meeting
Conference date
12-2013
Conference city
Paris
Conference country
France
URI
https://basepub.dauphine.fr/handle/123456789/12806
Collections
  • DRM : Publications
Metadata
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Author
Arcot, Sridhar
24359 ESSEC Business School
Fluck, Zsuzsanna
1032 Dauphine Recherches en Management [DRM]
Gaspar, José-Miguel
24359 ESSEC Business School
Hege, Ulrich
status unknown
Type
Communication / Conférence
Item number of pages
52 p.
Abstract (EN)
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.

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