secondary buyout
(FINANCE) when a private equity fund sells a company it has taken private to another fund. Usually financed with junk bonds.
The secondary buyout became a hot trend in the period 2005-2008, partly because other segments of the equities markets were doing so poorly. The hedge funds were willing to buy the junk bonds because they believed they had mastered the risk control; but the deals themselves were absurd.
The whole purpose of a leveraged buyout is to restructure the target company so profits from its resale can be used to pay for the deal. But if a capital management firm has already issued the junk bonds to finance a restructuring, there's little hope of another takeover artist squeezing any more profit out of restructuring. The whole point is to scam the markets.
The secondary buyout became a hot trend in the period 2005-2008, partly because other segments of the equities markets were doing so poorly. The hedge funds were willing to buy the junk bonds because they believed they had mastered the risk control; but the deals themselves were absurd.
The whole purpose of a leveraged buyout is to restructure the target company so profits from its resale can be used to pay for the deal. But if a capital management firm has already issued the junk bonds to finance a restructuring, there's little hope of another takeover artist squeezing any more profit out of restructuring. The whole point is to scam the markets.
The sudden popularity of the secondary buyout never made any sense, except as a scam. As a vehicle for peddling exotic financial derivatives, it was mildly interesting, but there was no common sense to the idea of two consecutive takeover artists doing LBO's of the same company. One of them had to be incompetent for there to be any reason for it.
secondary buyout by Abu Yahya September 1, 2010
