Secondary Buyout Shutdown?

Wither the secondary buyout market? That’s what I was thinking as I left the CNBC studios on Wednesday morning, after having discussed the relative lack of exit opportunities for buyout-backed companies. My main talking points were about the September shutout of buyout-backed IPOs (snapped last night by Duff & Phelps), while co-guest Andrew Ross Sorkin was on to say that the credit crunch also has severely slowed the ability of private equity firms to sell companies to one another.

This second thesis was not one I had heard before, save for more general carping about slowdowns in deal volume. Moreover, I could not find any relevant data, so I decided to compile some myself. The results indicated that Sorkin was both right and wrong: Right in that secondary buyouts have slowed in the past few months, but wrong because the slowdown has only brought us down to levels seen earlier in the year (i.e., more “normal” levels). Whereas the buyout-backed IPO window is virtually painted shut, the secondary buyout window would still need to be caulked in a New England winter.

You can download my data here: Sponsor-to-Sponsor.xls. It was compiled from the “Sponsor-to-Sponsor” briefs section of Buyouts Magazine, which is published bi-weekly. I’m the one who compiles these items by rifling through old PE Week Wire issues, and believe it to be fairly comprehensive. Not perfect, mind you, but consistent in maker and method from month to month.

To make the chart, I listed each deal alongside the month in which it first appeared in Buyouts — which often referred to an announced agreement rather than afinal close. It also is worth pointing out that the publishing schedule could have weighted certain months more heavily than others, but this was nonetheless the best available option. I looked at August 2006 through September 2007, plus some deals that will appear in the first October 2007 issue (which I’ve excluded from the following analysis).

There were 221 reported secondary buyouts in the sample, which works out to a monthly average of 15.78 deals per month. The median was 15.5.

The busiest months were April through June, with 31, 26 and 26 deals, respectively. The slowest month was July, which supports Sorkin’s argument of a post-credit crunch slowdown. Since July, however, the market has picked back up. There were 17 secondary buyouts reported in August, and 11 in September. Moreover, there already are five deals in the October list — compared to just eight for all of October 2006.

These certainly aren’t salad days for buyout-backed exits, but it also isn’t the end of days…