Introduction
Every secondary buyout invites an awkward inference. The seller is a professional owner that knows the company better than any outsider and has concluded that the price on offer beats keeping it; the buyer is a professional too, and knows that. A secondary buyout (SBO) happens only when the buyer can explain why the company is worth more in its hands than in the seller's. The 2025 sale of SolarWinds shows how sharp that test can be. When Turn/River Capital offered $18.50 a share, Thoma Bravo, one of the two sponsors that controlled the company, looked at bidding against it with access to the data room and declined, and its affiliates were later expected to lend into Turn/River's second lien debt. A bank's financial sponsors group (FSG) usually knows both sides of a deal like this, which makes the route a source of mandates on each side and of conflicts that have to be settled before the first call.
Why One Sponsor Sells a Company to Another
A sponsor sells to another sponsor for the same reasons it sells at all: the value creation plan is largely delivered, the fund needs realized cash, and today's price beats another year's expected return, the test behind weighing a sale against another year of holding. The buyer is a sponsor because of the asset's shape: steady cash flow, a balance sheet lenders will finance and no obvious corporate acquirer leave sponsors as the deepest pool of buyers.
- Secondary Buyout (SBO)
The acquisition of a company from one private equity sponsor by another, usually financed with new acquisition debt that replaces the seller's. The seller realizes its investment, sometimes keeping a minority stake, and the buyer starts a new holding period with its own plan, management incentives and capital structure.
SBOs differ from strategic sales less in process than in what is being bought. A corporate buys a business to combine with its own; a sponsor buys an investment it must sell again, so its price is bounded by its return hurdle and the debt it can raise rather than by synergies.
What a Sponsor Buyer Offers the Seller
Against a corporate, a sponsor buyer usually pays less but brings terms a fund values:
- Speed and certainty: few antitrust overlaps, committed fund equity and debt lined up before signing.
- A familiar counterparty: both sides know the documents and the diligence routine.
- Continuity for management: a new incentive plan and a chance to roll equity again, instead of integration into a larger group.
- Room to keep a stake: a sponsor can accept a seller's reinvestment, which a corporate rarely wants.
The cost is price. A sponsor cannot pay for synergies it will never earn, so a seller with a credible corporate bidder usually runs both groups against each other; the terms a corporate concedes are covered in selling to a corporate acquirer.
Second, Third and Fourth Owners
Many companies pass from sponsor to sponsor more than once, climbing the middle-market sponsor ladder or circulating among large sponsors, and each pass is named by its order.
- Tertiary Buyout
A buyout in which a company's second private equity owner sells it to a third, the step after a secondary buyout; later passes are sometimes called quaternary buyouts. Critics describe repeated sponsor-to-sponsor sales as "pass-the-parcel" deals, implying each new owner has less left to improve.
The label matters because each pass narrows the remaining upside: costs already cut, add-ons already bought, leverage already used once. A sale to a continuation vehicle the same sponsor manages is a different transaction, because seller and buyer share a manager; it is covered in the continuation vehicle handoff to private capital advisory.
Why the Buyer Expects to Earn Its Return
An SBO buyer pays what an informed seller agreed to accept, so its case cannot rest on a cheap price. It rests on a different plan: something the second owner can do that the first could not, or chose not to. Interviewers often ask why one private equity firm would buy a company from another; the replies that survive follow-up describe the buyer's plan rather than the seller's mistakes.
Five Theses for a Second Owner
Most buyer cases combine a few of five theses, each resting on a condition the seller's record can confirm or contradict:
| Buyer thesis | What has to be true | Where it breaks |
|---|---|---|
| Scale and platform | The company can lead a larger consolidation than the first fund could finance | Target prices rise with the platform's multiple |
| Add-ons | A pipeline of targets the seller did not buy | The seller already bought the cheapest ones |
| New strategy or sector skill | The buyer brings expertise the seller lacked, such as pricing or a product shift | The first owner already made the easy changes |
| More leverage | Cash flow can carry more debt than the seller used | Higher interest leaves less for growth and cushion |
| Internationalization | The buyer's network opens new markets | Expansion costs arrive before the revenue |
Leverage is the most criticized thesis, because it adds no operating value and depends on the loan market. The others map onto the three value creation levers of a leveraged buyout (LBO), with one difference: the second owner inherits whatever multiple expansion the first already collected.
What the Evidence on Secondary Buyout Returns Shows
The evidence is more mixed than the pass-the-parcel label suggests. In a study published in the Journal of Financial Economics, François Degeorge, Jens Martin and Ludovic Phalippou used deal-level returns from fund marketing documents covering 548 secondary buyouts and 7,449 other buyouts. SBOs made late in the buying fund's investment period, under pressure to deploy capital, underperformed: net of fees they returned about $0.88 for every $1 a comparable stock market investment returned. Earlier SBOs, nearly two-thirds of the sample, performed about as well as other buyouts, and those between firms with complementary skills, such as a finance-oriented seller and an operations-oriented buyer, outperformed.
Studies the authors cite add the pricing side: buyers under pressure to invest pay more, sellers under pressure to exit accept less, and SBOs show smaller operating gains than first buyouts on average. What separates good SBOs from bad ones is the buyer's reason for buying, not the route.
Paying More Than the Seller Did
Suppose a seller bought a company at 9 times earnings before interest, taxes, depreciation and amortization (EBITDA), grew EBITDA from $100 million to $150 million in five years, about 8.4% a year, and now sells at 12 times, or $1.8 billion. Part of its return came from a rising exit multiple, which the next owner cannot count on repeating, so the buyer's return must come mostly from earnings growth.
Buyers therefore lean on the theses above, and lenders limit how far the price can go.
How Secondary Buyouts Are Priced and Financed
In most SBOs the loan market sets the buyer's ceiling. Every sponsor bidder adds the equity its hurdle allows to the debt lenders will provide, so when lenders offer more turns of EBITDA, every bid rises together; the lenders' sizing is explained in how debt capacity is analyzed for an LBO. At closing the seller pays its sell-side bank and receives the equity value, while the buyer pays its own advisers and the arrangers of new debt that repays the old, so the company leaves with new lenders and bank relationships to win.
Old Debt Out, New Debt In
Acquisition loans typically treat a change of control as a default or a mandatory prepayment, so a sale normally repays them at closing from the buyer's financing, against payoff letters that release the lenders' liens. Two exceptions sit beside that default:
| Financing route | Who lines it up | When it fits |
|---|---|---|
| Repay and replace | The buyer and its arrangers | Default: the buyer wants its own terms and lenders |
| Keep portable debt | Existing lenders, agreed at the seller's entry | Leverage and other tests met; saves time and fees |
| Take a staple | The seller's bank or chosen lenders | Short timetable, unsettled markets, a bidder without sector lenders |
Portability has to be negotiated when the seller first borrows, the subject of debt portability negotiated at the seller's entry. A staple is offered during the sale itself, as the article on seller-arranged staples explains. Buyers often refinance anyway, because a new plan with more debt and more room for add-ons needs documents written for it.
Rollover, Reinvestment and What Each Owner Knows
Two groups decide whether to stay invested. Management chooses again between cash and a new roll into the buyer's structure, with a fresh incentive plan on top, the trade-off a management rollover involves. The selling sponsor may reinvest too. At PCI Pharma Services, Partners Group sold a majority to Kohlberg in 2020, and in July 2025 Bain Capital joined Kohlberg as co-lead in a deal valuing the company at about $10 billion including debt, with Partners Group and Mubadala reinvesting, according to Private Equity Wire's report on the deal.
The deeper information question runs both ways. The seller knows the company's history, its customers and where its forecast is soft. The buyer knows the seller's playbook: which EBITDA add-backs sponsors make, which spending gets deferred late in a hold. Each side prices asymmetries the other can recognize, which is why vendor due diligence and quality of earnings work weigh so heavily in an SBO.
How the Process Differs When Every Bidder Is a Sponsor
A sponsor-to-sponsor sale follows the stages of any auction, but its buyer universe is short and well known. Only a handful of funds have the right size, sector focus and remaining investment period, so the seller's bank can often predict the final round from the first calls, a feature of the sourcing view of sponsor-to-sponsor sales. The familiar field changes four things:
- Pre-emptive bids are more common, because a buyer that knows the sector and the seller's plan can price quickly and sign with certainty.
- Teaming restrictions matter more, since two natural bidders forming a club would remove much of the competition.
- Financing is compared more directly, because every bid stands on a debt package.
- Timetables are shorter: buyers reuse earlier diligence, and lenders often know the credit.
Clubs are policed through the no-teaming terms sellers impose in sponsor auctions. The seller still runs a process when the likely winner is obvious, because its limited partners (LPs) want evidence that the price was tested, particularly when some of them sit in both the selling and the buying funds. The same study found such investors pay no higher total transaction costs, but only a market check shows the price was not settled between friendly firms.
SolarWinds shows each of these features in one public record: a short list of sponsor buyers, a market check that failed, a single sponsor that returned with a plan, and a selling sponsor that weighed buying the company itself.
SolarWinds: Two Sponsors Sell to a Third
SolarWinds, an Austin-based maker of information technology (IT) management software, was taken private by Silver Lake and Thoma Bravo in February 2016 and listed again through an initial public offering (IPO) in October 2018. By early 2025 their funds still held about 35.5% and 28.9% of the shares, according to the information statement filed for the sale. Strictly a public take-private, the deal was decided by two sponsors whose combined 64% could approve it by written consent, so the filing is an unusually full account of a sponsor-to-sponsor sale.
How the Price Was Set
The route had already failed once. In late 2023 Goldman Sachs and Jefferies contacted 13 possible buyers, 12 of them sponsors; three submitted indications between $12.00 and $13.00 a share, and all three withdrew in November, citing the early stage of the company's shift to subscription revenue. From February 2024 to January 2025, talks with more than 20 financial and 14 strategic suitors produced no offer.
Turn/River Capital, a San Francisco software investor, had wanted only a carve-out of two product lines until December 2024, when one of its LPs, Sequoia Heritage, agreed to co-invest; Goldman had already run an outside-in financeability analysis of whether it could fund a full bid. Its written range of $17.50 to $18.00 a share rose to a best and final $18.50 on February 5, 2025, about 22% above the undisturbed $15.18, and the agreement was signed two days later with a 30-day window for a superior proposal. Thoma Bravo, given data room access to decide whether to consent or bid, had said on January 28 that it would not buy at or above Turn/River's price.
How Turn/River Financed It
At closing on April 16, 2025, the company repaid its first lien credit agreement dated February 5, 2016, the original buyout facility, amended at least eight times, and borrowed under new agreements, according to the closing filing: a $2.225 billion first lien term loan and $200 million revolver with JPMorgan Chase Bank as agent, and a $525 million second lien term loan with Alter Domus as agent. The information statement adds that $225 million of company cash would help pay the price and that Thoma Bravo affiliates were expected to join the second lien; the completion announcement put the enterprise value at about $4.4 billion.
The filing describes no management rollover: unvested equity awards became cash amounts payable on their original vesting dates, a retention device, and management did not negotiate post-closing roles before signing. On the filing's share count, the two sponsors' stakes were worth about $2.1 billion at the deal price.
The Banks on Each Side and the Coverage Conflict
An SBO puts banks in predictable seats. The seller's bank runs the process, builds the buyer list and, where asked, arranges a staple. The buyer's coverage banks compete to advise and, more valuably, to arrange the new debt: Turn/River used J.P. Morgan, Barclays, Santander and RBC Capital Markets as advisers, and JPMorgan Chase Bank became first lien agent. The fees split the same way: SolarWinds agreed to pay Goldman about $42 million and Jefferies $6.25 million, both contingent on closing, while the buyer's fees were not disclosed.
The conflict follows from the client base: a bank that covers sponsors covers the seller and most plausible buyers at once. Goldman disclosed fees over the prior two years of about $146 million from Thoma Bravo and its portfolio companies, about $34 million from Silver Lake's and about $33 million from Turn/River's. Jefferies reported about $39 million from the two sellers' groups combined. Neither bank was disqualified; the board hired both after relationship disclosures and conflict checks, partly to obtain a second fairness opinion. Banks manage the overlap with controls a client-type model depends on, starting with information barriers between deal teams and coverage bankers:
- Separate teams for the sale and for bankers covering likely bidders.
- One advisory seat per deal, with any financing offered to bidders made available to all of them with the seller's consent.
- Written disclosure of fees from each party before the engagement is signed.
The SolarWinds record ends on the detail this article began with. Thoma Bravo declined to buy the equity at $18.50 a share, yet its affiliates were expected to lend into the second lien that helped pay for it. That is not a contradiction: an informed owner can judge the cash flow strong enough to service senior and junior debt while judging the equity, which needs further growth and another buyer, worth less than the new owner paid.
Many secondary buyouts contain a version of that split. The two sponsors often agree about what the company is; they disagree about which layer of its capital structure is worth owning at the price. Advice on either side of an SBO starts from knowing which layer each client should want, and why.
