The importance of Familiarity of a business to Private Equity

Secondary buyouts (SBOs), where a private equity (PE) firm sells a portfolio company to another PE firm, have become a notable trend in the private equity landscape. One of the key advantages of this type of transaction is the familiarity that the buying PE firm often has with the business or its industry. This expertise and experience can significantly benefit the portfolio company in several ways:

Accelerated Onboarding and Strategic Implementation

Due to their familiarity with the business or sector, PE buyers in SBOs can typically hit the ground running. Their prior knowledge allows for a quicker understanding of the company’s operations, strategic position, and market dynamics. This accelerates the onboarding process and enables the new owners to implement strategic initiatives more rapidly than might be possible with buyers from outside the industry or different types of investors, such as strategic corporate buyers.

Informed Value Creation Strategies

PE firms specialize in value creation and have a toolkit of strategies designed to grow and improve the businesses they own. When a PE firm with specific sector experience acquires a company, they can apply industry-specific strategies that have proven successful in the past. This might include expanding into new markets, optimizing the supply chain, implementing technological innovations, or pursuing strategic acquisitions. Their familiarity with the sector’s nuances ensures these strategies are well-informed and tailored to the company’s specific context.

Risk Mitigation

PE firms with experience in a given sector are better positioned to identify and mitigate industry-specific risks. Their understanding of regulatory challenges, market trends, and competitive dynamics enables them to foresee potential issues and implement preemptive strategies to address them. This risk mitigation is crucial for maintaining stable growth and protecting the company’s value.

Network Leveraging

An often-overlooked advantage of SBOs is the network that the buying PE firm brings to the table. These networks can include relationships with potential customers, suppliers, advisors, and even acquisition targets. A PE firm familiar with the industry can leverage its network to open new doors for the portfolio company, facilitating partnerships, deals, and opportunities that might not have been accessible otherwise.

Access to Capital and Resources

PE firms understand the capital needs of growing businesses, especially in industries they are familiar with. As such, they are often prepared to invest additional capital into the portfolio company to fuel growth initiatives, whether through direct investment, facilitating access to debt financing, or supporting acquisitions. This financial backing is crucial for executing on ambitious growth plans.

Enhanced Credibility

When a respected PE firm with industry expertise acquires a company, it can enhance the company’s credibility in the market. This perceived endorsement can be beneficial in negotiations with customers, suppliers, and financiers, and can even positively impact the company’s valuation in the eyes of future investors or buyers.

Improved Operational Efficiencies

PE firms with sector experience are adept at identifying operational inefficiencies and implementing best practices. They can bring in industry experts, adopt cutting-edge technologies, and apply proven operational frameworks to improve margins, enhance productivity, and drive sustainable growth.

Secondary buyouts (SBOs) have become an integral part of the exit strategy toolkit for private equity (PE) firms, offering a path to liquidity through the sale of a portfolio company to another PE firm. One of the key attractions of SBOs is the exit flexibility they afford the selling PE firm, providing more control over the timing and terms of the exit. This flexibility is particularly valuable in uncertain market conditions, where traditional exit routes like initial public offerings (IPOs) or strategic sales may be less viable or attractive. Here’s how SBOs offer exit flexibility and why it’s advantageous:

Control Over Timing

In an SBO, the selling PE firm has significant control over the timing of the exit. Unlike IPOs, which are highly sensitive to market conditions and investor sentiment, or strategic sales, which depend on finding the right corporate buyer at the right time, SBOs can be initiated when the selling PE firm believes the portfolio company has reached an optimal point in its value creation cycle. This allows the seller to strategically choose an exit timing that maximizes returns, rather than being forced to wait for favorable market conditions or the right strategic buyer to emerge.

Negotiation of Terms

SBO transactions involve negotiations between professional investors who have a clear understanding of the value drivers within PE-owned businesses. This professional-to-professional dynamic often results in more straightforward negotiations, where both parties can focus on achieving mutually beneficial terms without the complexities that can arise in strategic sales or the regulatory constraints associated with IPOs. The selling PE firm can negotiate terms that reflect the true value of the portfolio company and its future growth potential, potentially securing better terms than might be available through other exit channels.

Speed and Certainty of Execution

The flexibility of SBOs extends to the execution of the deal. Transactions between PE firms can often be completed more quickly than strategic sales or IPOs, as both parties are familiar with the process and motivated to close the deal efficiently. This speed can be a significant advantage in uncertain markets, where conditions can change rapidly. Moreover, the certainty of execution with an SBO can be higher, as PE buyers typically have committed funds and are less likely to be deterred by short-term market volatility, unlike public market investors or corporate buyers who may have broader considerations.

Adaptability to Market Conditions

SBOs offer selling PE firms the ability to adapt their exit strategy to prevailing market conditions. In a buoyant market, the seller might achieve a premium valuation from a PE buyer looking to deploy capital in high-performing sectors. In more volatile or uncertain markets, an SBO can still provide a viable exit route at a fair valuation, especially if the portfolio company is performing well and aligns with the buying firm’s investment thesis. This adaptability makes SBOs a valuable option in a PE firm’s exit strategy arsenal.

Reduced Market Dependency

While all exits are influenced by market conditions to some extent, SBOs are less directly tied to the vagaries of public markets than IPOs. This reduced dependency can be particularly advantageous during periods of market turbulence or when public markets are less receptive to new listings. By choosing an SBO, a selling PE firm can bypass the uncertainties and volatilities of public markets, achieving liquidity for its investors through a more controlled and predictable process.

Exit flexibility is a significant advantage of secondary buyouts in the private equity sector, offering selling PE firms more control over the timing, terms, and execution of their exit strategies. This flexibility, combined with the ability to adapt to market conditions and reduce dependency on public markets, makes SBOs an attractive exit option, particularly in uncertain or volatile market environments. By leveraging SBOs, PE firms can optimize their returns and manage their investment lifecycle with greater precision and predictability.


The familiarity that PE firms bring to secondary buyouts can be a significant asset for the portfolio company. By leveraging their industry expertise, strategic experience, and networks, PE buyers can accelerate growth, mitigate risks, and create substantial value. This symbiotic relationship between PE firms and their portfolio companies underscores the strategic rationale behind SBOs, making them an attractive proposition for both sellers and buyers in the private equity ecosystem.  FD Capital are leaders when it comes to Senior Finance Recruitment for the PE sector.

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