Secondary buyouts are having a rebound in their share of private equity exits as managers seek certainty and speed in the sales of their portfolio companies.
LPs are demanding that managers be decisive about exiting companies, said Tim Toska, global head of PE at fund administrator Alter Domus, and secondary buyouts can provide liquidity in an efficient manner.
PitchBook data shows 30.5% of PE exits in Q1 involved sales to other financial sponsors. This compares to 25.2% in the same period last year.
The increase of secondary buyouts as a share of PE exits increased even as both the total value and volume of these deals fell overall.
The decision by PE firms to pass the parcel or sell their portfolio companies to other financial sponsors may be partly due to a perception of more predictable outcomes.
“Private equity firms want to maximize value and have certainty in their deals,” said Jeff Vogel, head of Ernst & Young’s software strategy group. He noted that secondary buyouts can take less time to close than sales to strategic buyers.
Last week, Levine Leichtman Capital Partners sold smoothie and sandwich chain Tropical Smoothie Cafe to Blackstone for nearly $2 billion, according to The Wall Street Journal.
The report said the deal was intended to accelerate the chain’s growth and leverage Blackstone’s franchise expertise.
French PE firm Ardian, likewise, sold a majority stake in UK-based Audiotonix to fellow French shop PAI Partners on April 23. PE Hub reported the deal was valued at almost £2 billion (about $2.51 billion). Ardian will retain a minority stake in the music equipment manufacturer, alongside its management.
PAI is expected to assist the company with its R&D initiatives within the audio industry.
Meanwhile, Sun European Partners sold its interest in Adler & Allan, a company specializing in environmental risk reduction, to Goldman Sachs Asset Management.
“PE buyers are in a better spot because they have the dry powder to make investments,” said Toska. “And there’s familiarity in terms of the managers and the companies they invest in.
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