What typically characterizes a secondary buyout?

A secondary buyout is characterized by the sale of a portfolio company from one private equity firm to another private equity firm. This type of transaction often arises when the initial private equity owner seeks to exit their investment but still sees potential in the company, prompting them to sell it to another investor who believes they can add further value.

In this context, the nature of the transaction is vital: it emphasizes the transfer of ownership between two financial sponsors rather than to a strategic acquirer or through public markets. This creates an opportunity for continued investment and improvement in the business through the new owner's strategies.

While other factors could be present in transactions, such as potential for higher returns or strategic reinvention, they are not defining characteristics of secondary buyouts. The immediate cash exit for investors may happen, but it is not a guarantee in all cases. The essence of a secondary buyout primarily lies in the involvement of private equity firms in the buying and selling process.