The Rise of Secondary Buyouts in Private Equity

In today’s fast-evolving deal landscape, secondary buyouts in private equity (SBOs) are emerging as a preferred exit strategy. Traditionally, private equity (PE) firms have relied on trade sales, IPOs, or recapitalizations to exit portfolio investments. However, secondary buyouts—where one PE firm sells a company to another—are gaining traction due to their speed, flexibility, and attractive pricing. This article explores the reasons behind the rising popularity of SBOs, how firms leverage them for value creation, and what challenges this exit path may present.

What Is a Secondary Buyout?

A secondary buyout refers to the sale of a portfolio company by one private equity firm to another. Unlike primary buyouts, where a PE firm acquires a business directly from founders or corporates, SBOs involve companies that have already been under private equity ownership. These businesses often come with a certain degree of professionalization, operational improvements, and strategic focus, making them attractive for further value creation by another PE sponsor.

Why PE Firms Prefer Secondary Buyouts

One major reason for the rising preference for SBOs is the speed at which these transactions can be executed. When both the buyer and the seller are experienced PE firms, the negotiation and due diligence processes tend to be quicker and more efficient. This is especially valuable in uncertain market conditions where rapid deal-making can provide a competitive edge.

In addition to faster timelines, SBOs often yield higher valuations. With an abundance of capital—or "dry powder"—in the hands of global PE funds, competition for quality assets is intense. This demand drives up pricing for companies that have demonstrated growth or operational improvements, enabling the selling PE firm to achieve a lucrative exit.

Another significant advantage is the flexibility in structuring these deals. Secondary buyouts allow for creative arrangements such as earn-outs, rollover equity, or staged payments. These structures can help balance risk and reward for both parties and often lead to smoother negotiations. Flexibility is particularly important in cases where the selling firm wants to retain a minority stake or stay involved post-transaction.

Creating Value Through Secondary Buyouts

Contrary to the notion that SBOs merely pass assets between financial sponsors, many PE firms use them as a platform to unlock additional value. For example, acquiring firms may focus on geographical expansion, digital transformation, new product development, or bolt-on acquisitions to take the business to the next level.

A notable case is that of Visma, a Nordic software company that passed through several private equity owners including Hg, Cinven, and KKR. Each firm contributed to the company’s evolution—whether through technology enhancement, market expansion, or operational efficiency—proving that multiple phases of value creation are indeed possible.

The Advantages of Secondary Buyouts

The advantages of SBOs extend beyond speed and pricing. The buyer often encounters a company that is well-prepared for sale, with cleaner financials, refined processes, and a seasoned management team. This reduces execution risk and enables the buyer to focus on scaling the business rather than fixing foundational issues.

Moreover, the seller benefits from dealing with a sophisticated buyer who understands the nuances of private equity ownership. This shared understanding facilitates smoother negotiations, clearer exit paths, and potentially even opportunities for future collaboration. For sellers who believe in the long-term potential of the company, the option to retain a minority stake and benefit from the next exit cycle is also appealing.

Challenges and Considerations

Despite the growing popularity of secondary buyouts, this strategy is not without its challenges. One key concern is the perceived saturation of value. If a company has already been through multiple rounds of private equity ownership, the next buyer may question how much incremental value remains to be captured. This issue is particularly acute in tertiary or quaternary buyouts, where growth levers may be limited.

Another challenge lies in due diligence. If the previous PE firm failed to address certain operational issues or overestimated the company’s potential, the new owner might inherit hidden risks. Furthermore, while deal speed is a benefit, it can sometimes lead to shortcuts in diligence that result in post-acquisition surprises.

Market Trends Driving the Growth of SBOs

Recent market data points to a clear increase in SBO activity. In North America, secondary buyouts accounted for more than 40% of PE exits in 2024. In Europe, the proportion was even higher in certain sectors, driven by the slowdown in IPO markets and reduced corporate appetite for acquisitions. With strategic buyers becoming more cautious and public markets less predictable, private equity firms are increasingly turning to one another to facilitate exits.

SBOs are particularly prevalent in sectors like technology, healthcare, and B2B SaaS. These industries offer recurring revenue, scalable models, and measurable KPIs—factors that make them attractive to multiple rounds of PE ownership.

Conclusion: SBOs as a Strategic Exit Choice

In a maturing private equity ecosystem, secondary buyouts in private equity represent a practical, flexible, and often lucrative exit path. They enable quicker deal closures, unlock higher valuations in a competitive market, and allow firms to creatively structure transactions to suit mutual goals.

While challenges like valuation fatigue and hidden risks must be managed carefully, the overall benefits of SBOs make them a compelling option in today’s deal environment. As private equity firms continue to evolve from capital providers to strategic partners, secondary buyouts will likely remain a cornerstone of sophisticated exit planning.