{"concept_id":"ALTSS-PE-011","slug":"secondary-buyout","canonical_name":"Secondary Buyout","acronym":"SBO","aliases":["sponsor-to-sponsor","sponsor to sponsor sale","SBO"],"kind":"transaction","authority":"industry","facets":["TXN"],"domains":["PRIVATE-EQUITY"],"display_title":"Secondary Buyout (SBO)","search_aliases":["what is a secondary buyout","secondary buyout vs continuation vehicle","sponsor to sponsor sale","why do lps worry about secondary buyouts"],"disambiguation":"Not a transaction in the secondaries market, where LP fund interests or fund-held assets change hands; an SBO is a direct sale of a company between unaffiliated sponsors.","one_sentence_definition":"A secondary buyout (SBO) is a leveraged buyout in which one private equity sponsor sells a portfolio company to another, unaffiliated sponsor, so control passes from one financial owner to the next.","plain_english":"Instead of selling a company to a corporate buyer or listing it, a private equity fund sells it to a different private equity fund. The buyer usually puts new debt on the company and gives management a new incentive plan. For the seller it is an exit; for the buyer it is a new investment in a company that has already been through one period of private equity ownership.","parent_concepts":["leveraged-buyout"],"child_concepts":[],"related_concepts":["gp-led-secondary","continuation-vehicle","auction-process","trade-sale","ipo-exit","rollover-equity","management-incentive-plan","cross-fund-investment"],"comparison_concepts":[],"not_the_same_as":[{"slug":"gp-led-secondary","distinction":"In a GP-led secondary the buyer is a vehicle managed by the selling GP; in an SBO the buyer is an unaffiliated sponsor."},{"slug":"continuation-vehicle","distinction":"A continuation vehicle is the GP's own new vehicle that buys assets from its existing fund; it is a secondaries structure, not a sponsor-to-sponsor sale."},{"slug":"secondaries","distinction":"The secondaries market trades LP interests in funds and fund-held assets; an SBO is a direct company sale between sponsors."},{"slug":"trade-sale","distinction":"A trade sale is to a strategic (corporate) buyer that will usually integrate the business; an SBO is to another financial sponsor."}],"formula_ids":[],"worked_examples":[],"sections":[{"heading":"How an SBO works","paragraphs":["The selling sponsor usually runs an [auction process](/glossary/auction-process) open to financial and strategic buyers. The winning sponsor acquires control through a new holding structure, refinances the existing debt with a new package and agrees new terms with management. Managers typically sell part of their stake, roll the rest into the new structure as [rollover equity](/glossary/rollover-equity) and receive a new [management incentive plan](/glossary/management-incentive-plan). The seller sometimes reinvests for a minority stake alongside the buyer. A company sold between sponsors for a second time is in a tertiary buyout; a third time, a quaternary buyout."]},{"heading":"Why SBOs happen","paragraphs":["For the seller, a sponsor buyer offers an exit when strategic buyers are absent, the IPO market is closed or the fund needs to return capital before its term ends. For the buyer, a sponsor-owned company comes with institutional reporting, audited accounts, a tested management team and a financing history, which lowers execution risk. The buyer's thesis is that it can take the company further: a larger fund able to support more acquisitions, sector expertise, international expansion or the next stage of a [buy-and-build](/glossary/buy-and-build). Price is shaped by what financial buyers can pay, which depends heavily on how much debt lenders will provide; a strategic bidder in the same process may value synergies that sponsors cannot."]},{"heading":"Why LPs scrutinise SBOs","paragraphs":["Large LPs often hold funds of both the seller and the buyer. When the company moves between them, the LP has paid fees and carried interest to the first sponsor on the gain, bears transaction costs on both sides, and starts a new round of fees and potential carry with the second sponsor, while still owning a stake in the same business. Its net exposure to the company may barely change. LPs therefore ask buyers what they can achieve that the previous owner did not, how the entry price compares with the seller's last valuation, and how often a manager buys from or sells to other sponsors. A related concern is deployment pressure late in an investment period, when buying a known sponsor-owned company can be the fastest way to invest."]},{"heading":"Secondary buyout versus GP-led continuation vehicle","paragraphs":["The two are easy to confuse because in both a sponsor-owned company is sold and the original fund exits. In an SBO the buyer is an unaffiliated sponsor negotiating at arm's length, and the selling GP has no interest on the buy side. In a [GP-led secondary](/glossary/gp-led-secondary) the same GP sells the asset from one of its funds to a new [continuation vehicle](/glossary/continuation-vehicle) that it also manages, financed by secondary investors, and each existing LP decides whether to take cash or move into the new vehicle. Because the GP sits on both sides, a continuation vehicle is a secondaries transaction with a structural conflict. Guidance from the Institutional Limited Partners Association (ILPA) asks GPs to bring that conflict and the alternatives to the [LPAC](/glossary/lpac), and US advisers that file [Form PF](/glossary/form-pf) report the closing of an adviser-led secondary transaction by a private equity fund they advise in Section 6 of the form, within 60 calendar days after the end of the quarter. A joint proposal of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission, published in April 2026, would delete Section 6; as of 2 October 2026 it had not been adopted. None of this applies to an arm's-length SBO, where the selling GP has no interest on the buy side. The SEC rule adopted in 2023 that would have required a fairness opinion or valuation opinion for adviser-led secondaries (Rule 211(h)(2)-2) was vacated by the US Court of Appeals for the Fifth Circuit on 5 June 2024 and is not in effect."]},{"heading":"Diligence in a sponsor-to-sponsor deal","paragraphs":["Both sides are professional buyers with detailed records of the company's sponsor ownership. The buyer's diligence usually starts from vendor due diligence reports commissioned by the seller and focuses on what the first sponsor already did: which EBITDA adjustments have become permanent, which cost savings have been taken, how much of the growth was acquired, and what capital expenditure was deferred. A [quality of earnings](/glossary/quality-of-earnings) review of adjustments made during the first ownership period is standard."]}],"classification_rules":["Classify as an SBO when the seller is a financial sponsor (a private equity fund or its vehicle) and the buyer is a different, unaffiliated sponsor acquiring control.","If the buyer is a vehicle managed by the seller's GP or an affiliate, classify as a GP-led secondary or cross-fund transaction.","If the buying sponsor acquires a minority stake, classify as a minority investment and partial sale, not an SBO.","If the buyer merges the company into an existing portfolio company, record the deal both as a sponsor exit and as an add-on acquisition."],"calculation_rules":[],"common_mistakes":["Calling a GP-led continuation vehicle a secondary buyout. The buyer in a continuation vehicle is managed by the selling GP.","Treating an SBO as a realisation for an LP that holds both funds without looking at its net position in the company.","Assuming a company already owned by a sponsor has no value-creation potential left, or the opposite; it depends on the plan and the price.","Describing the SEC's 2023 fairness-opinion requirement for adviser-led secondaries as in force."],"edge_cases":["When the selling sponsor reinvests for a minority stake, the deal is partly an exit and partly a continued holding.","A second sponsor may buy a minority or joint-control stake rather than control; that is a partial sale, not a full SBO.","A sale to a fund managed by an affiliate, or by a firm with shared ownership, needs conflict analysis even if the GPs are legally separate.","A buyer may merge the acquired company into one of its existing platforms, so the deal is also an add-on acquisition."],"external_standard_mappings":[],"source_ids":["SRC-ILPA-CONTINUATION-FUNDS-2023","SRC-US-COURT-CA5-23-60471","SRC-US-FR-2023-09775","SRC-US-FR-2026-07993","SRC-US-FR-2026-18104","SRC-US-SEC-FORM-PF","SRC-US-SEC-PFAR-VACATUR-NOTICE","SRC-US-SEC-PR-2023-155"],"citations":[{"source_id":"SRC-ILPA-CONTINUATION-FUNDS-2023","pinpoint":"May 2023 guidance (draft replacement released 2026-06-24)","supports":"GPs asked to engage the LPAC on conflicts and alternatives in GP-led continuation fund processes","source":{"source_id":"SRC-ILPA-CONTINUATION-FUNDS-2023","title":"Continuation Funds: Considerations for Limited Partners and General Partners","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/resources-tools/resource-library/continuation-funds-considerations-for-limited-partners-and-general-partners/","year":2023,"publication_date":"May 2023","jurisdiction":"intl","status":"Current but under revision: draft Continuation Vehicle guidance released 24 June 2026, comments closed 5 August 2026; final not yet confirmed","last_verified":"2026-10-01"}},{"source_id":"SRC-US-FR-2023-09775","pinpoint":"88 FR 38146; DATES (sections 5 and 6 effective 2023-12-11); Form PF Sec. 6","supports":"Quarterly event reporting of adviser-led secondary transactions by Form PF filers advising private equity funds","source":{"source_id":"SRC-US-FR-2023-09775","title":"Form PF; Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers; Requirements for Large Private Equity Fund Adviser Reporting (final rule), Release IA-6297, 88 FR 38146","publisher":"U.S. Securities and Exchange Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2023-06-12/pdf/2023-09775.pdf","publication_date":"Adopted 2023-05-03; published 2023-06-12; sections 5 and 6 effective 2023-12-11; remainder effective 2024-06-11","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","pinpoint":"Rule 211(h)(2)-2","supports":"Adviser-led secondaries opinion rule vacated and not in effect","source":{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","title":"Announcement Regarding the Private Fund Advisers Rules","publisher":"U.S. Securities and Exchange Commission","document_type":"guidance","url":"https://www.sec.gov/announcement-regarding-private-fund-advisers-rules","publication_date":"2024-10-31","jurisdiction":"US","status":"current","last_verified":"2026-10-01"}},{"source_id":"SRC-US-COURT-CA5-23-60471","pinpoint":"Decided 2024-06-05","supports":"Vacatur of the Private Fund Adviser Rules","source":{"source_id":"SRC-US-COURT-CA5-23-60471","title":"National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024)","publisher":"U.S. Court of Appeals for the Fifth Circuit (via govinfo, USCOURTS collection)","document_type":"court","url":"https://www.govinfo.gov/app/details/USCOURTS-ca5-23-60471","publication_date":"Decided 2024-06-05","jurisdiction":"US","status":"final","last_verified":"2026-10-01"}},{"source_id":"SRC-US-SEC-FORM-PF","pinpoint":"Section 6 preamble; Item B (adviser-led secondary transactions)","supports":"Section 6 report filed within 60 calendar days after quarter end when a reporting fund closed an adviser-led secondary transaction","source":{"source_id":"SRC-US-SEC-FORM-PF","title":"Form PF (reference copy): General Instructions and Glossary","publisher":"U.S. Securities and Exchange Commission","document_type":"form","url":"https://www.sec.gov/files/formpf.pdf","publication_date":"Reference copy posted at sec.gov/files/formpf.pdf, OMB No. 3235-0679; includes Sections 5 and 6 added by the 2023 amendments","jurisdiction":"US","status":"current","last_verified":"2026-10-01"}},{"source_id":"SRC-US-FR-2026-07993","pinpoint":"91 FR 22232 (published 2026-04-24); Table 1b, 91 FR 22234-22235; \"Eliminate Form PF Private Equity Quarterly Reporting in Section 6\", 91 FR 22257 (Section 6 eliminated)","supports":"Pending April 2026 proposal to delete Form PF Section 6","source":{"source_id":"SRC-US-FR-2026-07993","title":"Form PF; Reporting Requirements for All Filers (joint proposed rules), 91 FR 22232","publisher":"U.S. Securities and Exchange Commission and Commodity Futures Trading Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2026-04-24/pdf/2026-07993.pdf","publication_date":"Proposed 2026-04-20; published 2026-04-24; comments due 2026-06-23","jurisdiction":"US","status":"proposed","last_verified":"2026-10-01"}},{"source_id":"SRC-US-FR-2026-18104","pinpoint":"91 FR 56593 (published 2026-09-03)","supports":"April 2026 proposal still under consideration (compliance date of 2024 amendments extended to 2027-07-01)","source":{"source_id":"SRC-US-FR-2026-18104","title":"Form PF; Reporting Requirements for All Filers and Large Hedge Fund Advisers; Further Extension of Compliance Date (joint final rule), 91 FR 56593","publisher":"U.S. Securities and Exchange Commission and Commodity Futures Trading Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2026-09-03/pdf/2026-18104.pdf","publication_date":"Published and effective 2026-09-03","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-SEC-PR-2023-155","pinpoint":"Press release of 2023-08-23 (adviser-led secondaries)","supports":"As adopted, the vacated adviser-led secondaries rule required a fairness opinion or valuation opinion","source":{"source_id":"SRC-US-SEC-PR-2023-155","title":"SEC press release 2023-155: SEC Enhances the Regulation of Private Fund Advisers","publisher":"U.S. Securities and Exchange Commission","document_type":"release","url":"https://www.sec.gov/newsroom/press-releases/2023-155","publication_date":"2023-08-23","jurisdiction":"US","status":"historical (rules later vacated)","last_verified":"2026-10-02"}}],"faq":[{"q":"What is the difference between a secondary buyout and a continuation vehicle?","a":"In a secondary buyout an unaffiliated sponsor buys the company at arm's length. In a continuation vehicle the selling GP moves the company into a new vehicle it also manages, funded by secondary investors, so it sits on both sides of the deal."},{"q":"Why do LPs worry about secondary buyouts?","a":"An LP invested with both sponsors can end up owning the same company again after paying fees, carry and transaction costs on both sides, with little change in its net exposure."}],"seo":{},"first_published":null,"last_reviewed":"2026-10-02","last_modified":"2026-10-02","content_version":"2.0.0","url":"https://altss.com/glossary/secondary-buyout","json_url":"https://altss.com/reference/concepts/secondary-buyout.json","title":"Secondary Buyout (SBO)","formulas":[],"sources":[{"source_id":"SRC-ILPA-CONTINUATION-FUNDS-2023","title":"Continuation Funds: Considerations for Limited Partners and General Partners","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/resources-tools/resource-library/continuation-funds-considerations-for-limited-partners-and-general-partners/","year":2023,"publication_date":"May 2023","jurisdiction":"intl","status":"Current but under revision: draft Continuation Vehicle guidance released 24 June 2026, comments closed 5 August 2026; final not yet confirmed","last_verified":"2026-10-01"},{"source_id":"SRC-US-COURT-CA5-23-60471","title":"National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024)","publisher":"U.S. Court of Appeals for the Fifth Circuit (via govinfo, USCOURTS collection)","document_type":"court","url":"https://www.govinfo.gov/app/details/USCOURTS-ca5-23-60471","publication_date":"Decided 2024-06-05","jurisdiction":"US","status":"final","last_verified":"2026-10-01"},{"source_id":"SRC-US-FR-2023-09775","title":"Form PF; Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers; Requirements for Large Private Equity Fund Adviser Reporting (final rule), Release IA-6297, 88 FR 38146","publisher":"U.S. Securities and Exchange Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2023-06-12/pdf/2023-09775.pdf","publication_date":"Adopted 2023-05-03; published 2023-06-12; sections 5 and 6 effective 2023-12-11; remainder effective 2024-06-11","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-FR-2026-07993","title":"Form PF; Reporting Requirements for All Filers (joint proposed rules), 91 FR 22232","publisher":"U.S. Securities and Exchange Commission and Commodity Futures Trading Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2026-04-24/pdf/2026-07993.pdf","publication_date":"Proposed 2026-04-20; published 2026-04-24; comments due 2026-06-23","jurisdiction":"US","status":"proposed","last_verified":"2026-10-01"},{"source_id":"SRC-US-FR-2026-18104","title":"Form PF; Reporting Requirements for All Filers and Large Hedge Fund Advisers; Further Extension of Compliance Date (joint final rule), 91 FR 56593","publisher":"U.S. Securities and Exchange Commission and Commodity Futures Trading Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2026-09-03/pdf/2026-18104.pdf","publication_date":"Published and effective 2026-09-03","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-SEC-FORM-PF","title":"Form PF (reference copy): General Instructions and Glossary","publisher":"U.S. Securities and Exchange Commission","document_type":"form","url":"https://www.sec.gov/files/formpf.pdf","publication_date":"Reference copy posted at sec.gov/files/formpf.pdf, OMB No. 3235-0679; includes Sections 5 and 6 added by the 2023 amendments","jurisdiction":"US","status":"current","last_verified":"2026-10-01"},{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","title":"Announcement Regarding the Private Fund Advisers Rules","publisher":"U.S. Securities and Exchange Commission","document_type":"guidance","url":"https://www.sec.gov/announcement-regarding-private-fund-advisers-rules","publication_date":"2024-10-31","jurisdiction":"US","status":"current","last_verified":"2026-10-01"},{"source_id":"SRC-US-SEC-PR-2023-155","title":"SEC press release 2023-155: SEC Enhances the Regulation of Private Fund Advisers","publisher":"U.S. Securities and Exchange Commission","document_type":"release","url":"https://www.sec.gov/newsroom/press-releases/2023-155","publication_date":"2023-08-23","jurisdiction":"US","status":"historical (rules later vacated)","last_verified":"2026-10-02"}]}