Brief Definition
A secondary buyout is a financial transaction where a private equity firm sells its investment in a company to another private equity firm. Secondary buyouts can happen for various reasons, such as the original private equity firm wanting to exit the investment to realize gains or the new private equity firm seeing potential for further growth and value creation.
Further Explanation
A secondary buyout is a financial transaction where a private equity firm sells its investment in a company to another private equity firm. This is different from a traditional buyout where the buyer might be an individual, a corporation, or the public market through an IPO. Secondary buyouts can happen for various reasons, such as the original private equity firm wanting to exit the investment to realize gains or the new private equity firm seeing potential for further growth and value creation.
Example:
Imagine Private Equity Firm A owns a company called Tech Innovators. Firm A decides to sell Tech Innovators to Private Equity Firm B. Firm B believes it can further improve Tech Innovators’ operations and eventually sell it for a higher price. This transaction between Firm A and Firm B is a secondary buyout.