Secondary buyout (SBO) meaning

For both the investing private equity fund and the target’s leadership, the prime lure of a private equity-backed buyout is the chance to crystallise a meaningful gain on exit. There are several potential paths to exit from such an investment, most typically: a trade sale to another company operating within the same sector, a flotation (IPO), or a secondary buyout (SBO). The ultimate route will hinge on considerations such as public market appetite for a listing and whether credible purchasers are available. Management often influence the decision, and may favour renewed private equity support via an SBO when the business model and prevailing market backdrop align. A secondary buyout (SBO) is, in essence, a private equity-backed acquisition of a company that has already undergone a private equity-backed buyout. In an SBO, the existing private equity owner exits its stake, though the current management team can remain in post afterwards. Alternatively, fresh management might be appointed, or a blend of old and new...

A secondary buyout (SBO) A secondary buyout (SBO) occurs when private equity finances the purchase of a company that has already undergone a prior buyout. They provide one route for private equity funds to realise and exit an existing buyout position. In an SBO the current private equity house sells out, yet the target's management typically remains in post following completion, albeit some managers may depart and be replaced, or, more rarely, a wholesale change of management may occur. Managers who continue are usually required to sell the interests they acquired in the target vehicle under the earlier buyout, receiving consideration from the new private equity backer. Accordingly, continuing managers dispose of the interests they previously acquired in the target vehicle and accept the consideration proposed by the incoming investor. They then participate, to some extent, by acquiring interests in the vehicle used to implement the SBO. At least in part, this entails the team taking a stake in the new SBO acquisition vehicle. This Practice Note reviews the...