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Cumming, D. J. and Fleming, G., “A law and finance analysis of venture capital exits in emerging markets,” Working Paper, University of Alberta and Australian National University, February 2003.

has been cited by the following article:

• TITLE: A Note on Secondary Buyouts-Creating Value or Recycling Capital

  AUTHORS: Jana KITZMANN, Dirk SCHIERECK

  KEYWORDS: Management Buyouts, Performance, Private Equity, Secondary Buyout

  JOURNAL NAME: iBusiness, Vol.1 No.2, December 18, 2009

  ABSTRACT: This paper analyzes whether secondary buyouts of private equity (PE) investors in general create value and therefore are a suitable alternative to exit strategies like trade sales and IPOs. Theoretically, two conflicting approaches might explain the use of secondary buyouts as an exit channel of private equity investors: the capital recycling effects and different potential sources of value creation. We present empirical tests of these approaches. The profitability of secondary buyouts is assessed by a comparison of exit multiples realized with secondary buyouts and trade sales. The results are not unequivocal, but overall we interpret our findings in a way that awards secondary buyouts a profitability that is not significantly different from trade sales. Therefore, we argue that secondary buyouts have the potential for adding value that arise from different sources like the reduction of agency costs or the functions of the financial investor. Secondary buyouts should thus not be seen as a second best alternative for recycling the PE investors’ capital in situations where alternative—and supposedly more attractive—exit channels are unavailable.