What are secondary buyouts?

The correct answer relates specifically to the transaction dynamics within the private equity market. Secondary buyouts refer to the sale of a portfolio company from one private equity firm to another private equity firm. This process typically occurs when the initial private equity firm seeks to realize a return on its investment by selling the company to another firm that may have a different strategic focus, operational expertise, or additional capital resources to further grow the company.

In the context of private equity, secondary buyouts can be advantageous for both parties involved. The selling firm can exit its investment, often achieving a significant return, while the buying firm acquires a company that may still possess untapped potential for growth or operational improvements. This transaction type underscores a common strategy in private equity, where firms often cycle in and out of investments to optimize returns.

Other concepts listed, such as acquisitions of public companies, sales of portfolios back to original investors, and initial public offerings, do not accurately reflect the nature of secondary buyouts. Each of these alternatives represents different types of transactions within the broader investment landscape rather than the specific transfer of ownership between private equity firms.