Jonas Kick, Bernhard Schwetzler

• Secondary buyouts (SBOs) can be viewed as an oxymoron: Booming SBO activity meets public and investor´s perception of this investments as “lemons”, claiming that first round buyers in the primary buyout (PBO) leave no potential for further value creation on the table. Using a unique back-to-back sample of 276 cases of the same firm in a PBO and a SBO we do not find the internal rate of returns (IRRs) of back-to-back PBO/SBOs to display significant correlation and thus reject the “negative correlation hypothesis”. When directly comparing the performance of the two back-to-back buyout rounds, we find PBOs to display higher IRRs than SBOs at higher risk; however this difference disappears when taking size and holding period differences as two well-known pitfalls of IRR related rank orders into account. Operating performance also is not significantly different. Our results thus suggest that the current perception on SBOs should be revised and turn from "second hand" deals to "second generation" deals.