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The Continuing Appeal of Secondary Buyouts

by

December 9, 2011

Business Insider published an article prompted by some Preqin research showing that secondary buyouts now account for 30% of global deal flow and that so far this year there have been 291 secondary buyouts worth a total of USD 60.4 billion.

 

Last year there were 251 such deals. The article maintains that secondaries are popular with GPs because exiting via a secondary buyout means being paid a lump sum, as opposed to the uncertain compensation that comes with IPOs and their lockup periods. But for LPs that might find themselves invested in twice through more than one GP, it can be “fairly frustrating” because it means paying transaction fees on both sides of the deal.

 

The article concludes: Although sometimes LPs negatively refer to secondary buyouts as ‘passing the parcel’ the process is helpful and sometimes necessary for building a company to its full potential and scale.

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