How do you model a 'sponsor-to-sponsor' secondary buyout in a pitch?
Sponsor-to-Sponsor (secondary buyout) means selling to another PE sponsor rather than to a strategic. In the middle market it is typically 50–60% of all exits — the strategic buyer pool is often too small.
A sponsor-to-sponsor deal pays 0.95–1.05x of trading comps (no synergies creditable). A strategic sale pays 1.1–1.3x (with a synergy premium). That is material — on $50m of EBITDA, a 1.0x difference is $50m of EV.
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| Aspect | Strategic | Sponsor-to-Sponsor |
|---|---|---|
| Buyer logic | synergies + strategic fit | cash flow + multiple |
| Multiple premium | +10–25% (synergies) | −5 to +5% of comps |
| Speed to close | slow (antitrust, DD) | faster (PE understands the setup) |
| Synergies creditable | 70–100% | 0% |
- The strategic pool is too small (common in the middle market).
- Antitrust concerns with strategics (market share).
- Family-owner restrictions (e.g. selling only to "family-friendly" sponsors).
- A continuation vehicle (same GP, new fund).
The investment memo shows both routes. The base case is often sponsor-to-sponsor (more conservative). The upside case is a strategic sale with synergies as a premium. The buying PE firm wants value creation of its own — the sale multiple must not be "maxed out", or the buyer has no investment case.
Question: "Which buyer type would be your most likely buyer?"
Answer: "In the middle market, typically 50–60% sponsor-to-sponsor, 30–40% strategic, the rest IPO. The answer depends on sector and EV range — below $300m EV it is often sponsor-to-sponsor, because the target is too small for US strategics"