The difference in operational performance between Secondary Buyouts and Reverse LBOs

Sammanfattning: In the aftermath of the financial crisis, more LBOs were exited through a Secondary Buyout (SBO) compared to other exits, such as Reverse LBOs (RLBO). However, there are only few studies, examining the post-exit operational performance of different exit channels. In this thesis we examine the difference in operational performance between SBOs and RLBOs. First, our results suggest that growth firms are more likely to be exited through a RLBO, while SBO investors select firms that exhibit higher profitability. SBOs exhibit lower post-exit operational improvements compared to RLBOs in terms of lower post-exit abnormal sales growth and a stronger deterioration in abnormal EBTIDA/Total Assets margin. When controlling for firm pre-exit characteristics we find that 3 years after transactions SBOs show a 22% lower compounded sales growth and 2,4% lower EBITDA/Total Assets margin compared to RLBOs. Examining the effect of different agency costs on the post-exit operational performance of SBOs and RLBOs, our results suggest that GPs take advantage of cold debt markets to selectively invest in companies that are shed by public market investors during uncertain investment markets. Additionally, our findings suggest that certain GP business models seem more suited to invest in SBOs. For country specialist GPs, we conclude that the negative aspects of specialization, such as limited allocating possibilities, outweigh the positive aspects and lead to a deterioration in profitability. Global GPs on the other hand, seem to possess superior skills that are more suited to achieve operational improvements. Finally, we find that the experienced negative investor returns from the "go for broke hypothesis" are not a result of negative operational performance post-exit.