TLDR: A secondary buyout is one private equity sponsor selling a portfolio company to another sponsor, and it has quietly become one of the buyout industry’s core exit routes rather than a fallback when trade buyers and IPO windows disappear. Bain’s latest Global Private Equity Report found the sponsor-to-sponsor exit channel grew 21% globally in 2025, and PitchBook data show secondary sales accounted for 30.5% of US private equity exits in the first quarter of 2025, up from 25.2% a year earlier. The growth has less to do with a conviction that sponsor-to-sponsor deals create fresh value than with structural pressure: a record stock of unspent capital, holding periods that keep stretching, and limited partners waiting on distributions. The academic evidence on returns is more reassuring than the “pass the parcel” label implies, but the mechanics of these deals reward sharper underwriting on price and leverage than either side may assume.
A market that increasingly buys from itself
For most of private equity’s history, a sponsor exiting a portfolio company had two natural buyers: a strategic acquirer looking to fold the business into its own operations, or the public market via an IPO. Selling to another buyout fund was the option chosen when neither of those worked. That hierarchy has flattened. Bain’s 17th annual Global Private Equity Report shows global buyout-backed exit value jumped 47% year-on-year to $717 billion in 2025, and within that total, the sponsor-to-sponsor channel grew 21% globally, with Europe’s secondary buyout value rising 56% year-on-year. In the United States specifically, PitchBook found secondary buyouts made up 30.5% of private equity exits in the first quarter of 2025, compared with 25.2% in the same quarter of 2024, even as the total value and volume of those deals declined.
The nuance worth sitting with is that 2025 was not simply the year secondary buyouts took over. Trade sales grew faster: Bain’s report shows sponsor-to-strategic exit value rose 66% year-on-year globally, lifted by deals such as ECP’s $29.4 billion sale of Calpine to Constellation Energy. IPOs, though still a minor channel, increased 36% from a low base as public markets reopened. Sponsor-to-sponsor deals remain a large and structurally important piece of the exit mix, but 2025’s story is one of multiple channels recovering at once, not sponsors displacing every other buyer.
Why sponsors keep selling to each other
The forces pushing GPs toward secondary buyouts are mostly about timing pressure rather than preference. Bain estimates the global buyout industry is still sitting on a $1.3 trillion pile of dry powder, much of it aged and under pressure to be deployed before fund lives run out. On the exit side, the same report notes the industry is holding 32,000 unsold portfolio companies worth $3.8 trillion, and that average buyout holding periods have stretched to around seven years, up from five to six years through 2010–2021. Distributions to limited partners as a share of net asset value have stayed below 15% for four consecutive years, a level Bain describes as unmatched since the 2008–09 financial crisis.
Put those together and the appeal of a secondary buyout becomes mechanical rather than strategic. A sale to another sponsor can close faster and with fewer conditions than a trade sale, which depends on a strategic buyer’s own capital allocation cycle, or an IPO, which depends on receptive public markets and a multi-quarter preparation process. For a GP under pressure to show distributions, and for a buying sponsor sitting on capital that needs a home before a fund’s investment period closes, a sponsor-to-sponsor transaction solves both problems in the same transaction.
Passing the parcel, or creating value?
The obvious objection to secondary buyouts is that they look like sponsors trading assets among themselves without adding anything a strategic buyer or public market would recognize as new value. There is even an adverse-selection version of the argument, sometimes called the “lemons” problem: if a seller has already captured the easy operational and multiple-expansion gains, what is left for the next owner besides financial engineering?
The evidence is less damning than that framing suggests. A widely cited study published in European Financial Management, examining more than 2,400 buyout transactions including 448 secondary buyouts, found no evidence that secondary buyouts generate lower equity returns or weaker operational improvement than primary buyouts. That is a meaningful rebuttal to the pure recycling thesis. The same research, however, found that secondary buyouts are typically priced 6% to 9% higher than comparable primary deals and carry 28% to 30% more leverage, even after controlling for the credit conditions at the time of the deal. Returns may hold up on average, but they hold up on a thinner cushion of price discipline and a fuller reliance on debt capacity, which means dispersion between the best and worst secondary buyouts is likely to be wider than the average implies.
How the 2025 exit mix actually split
The relative growth rates across exit channels last year illustrate why secondary buyouts should be read as one route among several rather than the dominant one.
| Exit channel | 2025 global exit value growth (YoY) | Illustrative deal |
|---|---|---|
| Sponsor-to-strategic | +66% | ECP’s $29.4bn sale of Calpine to Constellation Energy |
| Sponsor-to-sponsor (secondary buyout) | +21% | Blackstone’s acquisition of Aligned Data Centers |
| IPO | +36% (from a low base) | Reopening of the public listing window |
Notably, without the Aligned Data Centers transaction, Bain’s report finds North American sponsor-to-sponsor exit value would actually have fallen 19% year-on-year, while Europe’s secondary buyout market grew broadly across a larger number of deals. That split matters for how the trend should be read: US secondary buyout activity in 2025 was concentrated in a handful of very large transactions, while European growth looks more structural.
What the higher bar for returns means for sponsor-to-sponsor deals
Bain’s report frames the industry’s return challenge with a simple rule of thumb it calls “12 is the new 5”: in the low-rate, multiple-expanding conditions of the 2010s, a typical buyout needed only 5% average annual EBITDA growth to deliver a 2.5x return over a five-year hold. With borrowing costs now in the 8% to 9% range, leverage ratios of 30% to 40%, and purchase multiples at record levels, the same target return now requires 10% to 12% annual EBITDA growth. That bar applies to every buyout, but it applies with particular force to secondary buyouts, which start from a higher entry price and heavier leverage than the primary deal that preceded them. A sponsor buying a company for the second time in its private-ownership life has to identify a genuine next stage of operational improvement, not simply refinance the balance sheet and wait for multiples to expand again.
Where Neumarz fits in
None of this makes secondary buyouts a bad trade. It makes them a trade that rewards precision: an honest view of what value the prior sponsor already extracted, a capital structure sized to genuine cash-generation capacity rather than to what credit markets will currently support, and a due-diligence process built around the next source of EBITDA growth rather than the multiple the seller is hoping to achieve. Neumarz advises sponsors on both sides of sponsor-to-sponsor transactions: sell-side positioning that substantiates the remaining value creation case, and buy-side diligence that tests whether a target’s next chapter can support the price and leverage a competitive process demands. As the exit mix keeps shifting between strategics, IPOs, and each other, having an advisor who treats secondary buyouts as their own discipline, not a residual category, is what separates a defensible deal from an expensive one.
References
- Bain & Company, “Private equity resurgence gathers steam as new era challenges firms to enhance value creation” (17th annual Global Private Equity Report), February 23, 2026. https://www.prnewswire.com/news-releases/private-equity-resurgence-gathers-steam-as-new-era-challenges-firms-to-enhance-value-creationbain–company-global-pe-report-302693957.html
- PitchBook, “Secondary buyouts rebound by deal count amid slow M&A and exits.” https://pitchbook.com/news/articles/private-equity-uptick-secondary-buyouts
- Achleitner, Ann-Kristin and Figge, Christian, “Private Equity Lemons? Evidence on Value Creation in Secondary Buyouts,” European Financial Management, Vol. 20, No. 2 (2014), pp. 406-433. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1756901
