The Data Behind the Shift: Secondary Buyouts in European Mid-Market 2025

The narrative that sponsor-to-sponsor deals are the exit of last resort — value-stripped, overpriced, and embarrassing to explain to LPs — is collapsing under the weight of its own contradictions. In H1 2024, S2S transactions represented 47% of all PE exits in Western Europe, up from 38% in 2021, the sharpest three-year acceleration Pitchbook and Bain’s Global PE Report 2025 have ever recorded in the segment. For anyone tracking the secondary buyout European mid-market 2025 landscape, this is not a cyclical blip driven by a closed IPO window or a temporarily paralysed strategic buyer universe — it is a structural reconfiguration of how mid-market assets change hands. The mechanics of price formation, GP dynamics, LP alignment and post-deal value creation in S2S transactions are now sufficiently distinct from primary buyouts that treating them as a degraded version of the same transaction is analytically indefensible. This piece unpacks why.

Why Strategic Acquirers Have Vacated the Field — and Why the Gap Is Structural, Not Cyclical

The conventional reading attributes strategic buyer retrenchment to the rate cycle: higher cost of debt compressed acquisition financing capacity from 2022 onwards, and corporates pulled back. That reading is partially correct but misses the deeper problem. Integration fatigue is the variable that rate normalisation does not fix.

Between 2018 and 2022, large European industrial and technology groups executed aggressive buy-and-build programmes at multiples that assumed continued multiple expansion and cheap leverage. By 2024, many of these platforms were digesting acquisitions that had underdelivered on synergies, managing ERP migration failures, and absorbing cultural integration costs that never appeared in the deal model. The organisational bandwidth to execute a new mid-market acquisition is simply not there, regardless of where the ECB base rate sits. According to Lincoln International’s Mid-Market Monitor Q4 2024, average entry EV/EBITDA multiples in European mid-market S2S transactions held at 9.2x in 2024, versus 8.1x for trade sales in the same bracket. That 110bps spread reflects PE buyers systematically pricing operational upside that strategic acquirers — distracted by integration backlogs — can no longer credibly underwrite.

There is a second structural factor: the concentration of dry powder. As of Q1 2025, the top 20 European PE funds control €340 billion in uncalled capital (Preqin), with vintage commitments from 2021–2023 funds approaching the deployment windows beyond which LP penalties and reputational damage to future fundraising become real. When quality primary targets are scarce — partly because the same PE ecosystem has already purchased most of the best-positioned mid-market businesses across DACH, Benelux, France and the Nordics over the past decade — sponsors buy from each other not out of preference but out of structural necessity. The dry powder problem is, paradoxically, an S2S pipeline generator.

Dismantling the Incumbency Discount: What the IRR Data Actually Shows

The LP objection to secondary buyouts has always rested on a plausible but empirically weak foundation: the incoming sponsor pays a premium for a business that has already been optimised, leaving less operational value to extract, and therefore generates structurally inferior returns. A 2024 working paper from HEC Paris and INSEAD — controlling for sector and hold period across a dataset of 1,400+ European buyouts — finds that second and third buyouts now generate median IRRs within 180 basis points of primary buyouts. That gap is economically meaningful but far narrower than the 400–600bps spread that LP investment committees had internalised as conventional wisdom through the 2010s.

The mechanism behind this convergence is worth understanding precisely, because it has direct implications for how incoming sponsors should structure their investment thesis.

First, the operational value creation levers available to a second buyout sponsor are categorically different from those available to the first, but they are not absent. A primary sponsor typically extracts value through professionalisation of management, ERP implementation, working capital discipline and geographic consolidation. A secondary sponsor operates on a business where those hygiene factors are already in place, which means the value creation thesis must be built around internationalisation, M&A-led scale, product line extension or digital infrastructure investment. These are harder to execute but generate higher absolute EBITDA growth when successful — which explains why S2S transactions in sectors with genuine platform-building potential (healthcare services, B2B software, speciality distribution) consistently outperform the asset-class average in second-hold periods.

Second, the quality of information available to an incoming sponsor in an S2S process is structurally superior to a primary buyout. The selling sponsor has typically prepared audited carve-out accounts, a vendor due diligence pack, and — critically — three to five years of post-acquisition financial history that demonstrates how the business performs under institutional ownership. The diligence risk premium that a primary buyout sponsor should price into a founder-owned business (opacity, informal financial reporting, key-man risk, undocumented customer relationships) is largely absent in an S2S. That risk reduction, properly modelled, justifies a higher entry multiple without necessarily degrading returns.

GP Dynamics in S2S Processes: The Mechanics That LPs and Sellers Routinely Misread

Sponsor-to-sponsor transactions introduce a layer of dynamic that is absent in trade sales or primary buyouts: both sides of the table are institutional, sophisticated, and — to some degree — operating within overlapping LP bases. This creates informational asymmetries that run in both directions and process disciplines that are frequently misread by advisers accustomed to corporate M&A.

The selling GP’s constraints are not the same as a strategic seller’s constraints. A corporate vendor optimises on headline price and certainty of close. A PE seller optimises on price, but also on timing relative to fund life, the ability to demonstrate DPI (distributions to paid-in capital) to LPs ahead of a fundraise, and the management of confidentiality relative to portfolio company employees and customers. These constraints directly shape process design. Selling sponsors in well-run S2S processes run compressed, highly controlled auctions — typically four to six weeks from NDA to final bid — because extended processes create management distraction risk and information leakage into credit markets that affects portfolio company refinancing capacity.

The incoming GP’s pricing framework is fundamentally leverage-adjusted. In a primary buyout of a founder-owned business, a significant portion of price discovery happens through revenue and EBITDA normalisation discussions — stripping out owner remuneration, non-recurring items, and related-party transactions. In an S2S transaction, the EBITDA figure has already been scrubbed. The price discussion therefore centres almost entirely on the appropriate multiple, the debt capacity of the business at current leverage ratios, and — increasingly in 2024–2025 — the structure of deferred consideration to bridge valuation gaps that compressed exit multiples have created relative to the selling sponsor’s fund model entry price.

Earn-out structures in S2S transactions have grown materially more complex. Where a 2019 S2S deal might have featured a simple 12-month revenue-based earn-out representing 5–8% of EV, 2024 vintage deals in the European mid-market are increasingly featuring 18–30 month EBITDA-linked mechanisms representing 10–15% of EV, with ratchet provisions tied to management retention and buy-and-build execution milestones. The structural driver is a valuation gap problem: selling GPs with 2018–2020 vintage funds entered at 9–11x EBITDA and need exit multiples in that range to generate fund-level IRRs consistent with their LP commitments; incoming sponsors are willing to pay 8.5–9.5x on a conservative base case but require protection against near-term earnings deterioration. The earn-out bridges that gap without forcing either party into a publicly awkward price concession.

Continuation Vehicles and GP-Led Secondaries: The S2S Alternative That Redefines the Exit Menu

Not every sponsor-to-sponsor transaction involves a clean asset sale. The growth of GP-led secondaries and continuation vehicles has created a parallel S2S dynamic where the selling and buying entity share the same GP — fundamentally different economics, but the same logic of sponsors transacting around each other rather than exiting to strategics or public markets.

Globally, GP-led secondaries and continuation vehicles reached a record $68 billion in 2024 (Jefferies Global Secondary Market Review 2025). European assets — particularly across DACH, Benelux and France — accounted for 31% of that deal flow. The structural driver is straightforward: a fund approaching its end-of-life holds one or two portfolio companies that have not yet reached their full potential, and the GP’s options are a discounted trade sale, a market-priced S2S process, or a continuation vehicle that allows the GP to roll the asset into a new structure with a fresh hold period, LP optionality on exit, and — critically — the ability to deploy additional capital behind the business without the capital constraints of an ageing fund.

For LPs, continuation vehicles represent a genuine choice architecture problem that most LP investment committees are underequipped to navigate. The conflict of interest is structural: the GP simultaneously sets the price (as seller to the continuation vehicle) and selects the asset (as the party deciding which portfolio companies enter the vehicle). The market response has been the emergence of independent price fairness opinions and secondary advisory processes designed to price the asset as if it were a third-party S2S transaction — but these mechanisms are not yet standardised, and the spread between GP-led continuation vehicle pricing and equivalent clean S2S pricing remains difficult for LPs to verify independently.

The practical implication for LPs evaluating fund commitments in 2025 is that continuation vehicle governance provisions — specifically, the consent threshold required for LP approval of a GP-led transaction, the independent pricing mechanism, and the pro-rata allocation rights for existing LPs who want to roll rather than exit — should be reviewed at subscription, not when the transaction is announced. By the time a GP proposes a continuation vehicle, the negotiating leverage to improve terms has largely dissipated.

Valuation Mechanics in S2S Transactions: Where the Multiple Compression Risk Is Actually Concentrated

The 9.2x average EV/EBITDA entry multiple in European mid-market S2S transactions (Lincoln International, Q4 2024) is a central tendency that conceals significant dispersion. Understanding where multiple compression is concentrated — and where premium pricing persists — matters for both selling sponsors optimising exit timing and incoming sponsors stress-testing their entry thesis.

Multiple compression in S2S transactions is most acute in three conditions:

• Single-customer concentration above 20% of revenue: In a primary buyout, sophisticated buyers can model mitigation strategies (contract extension, customer diversification investment). In an S2S, the incoming sponsor knows that if the primary sponsor — who had four to six years to solve the problem — did not, the structural fix is harder than the model suggests. This typically translates to a 0.5–1.0x haircut on the headline multiple or an escrow mechanism covering 12–18 months of revenue from the concentrated customer.
• Leverage above 5.0x net debt/EBITDA at entry: With European leveraged loan spreads having widened relative to 2021 lows, transactions requiring aggressive leverage to generate target IRRs are increasingly difficult to finance at acceptable spreads. Where the selling sponsor’s fund model assumed exit at a leverage-friendly multiple, incoming sponsors are either re-trading on price or requiring the selling sponsor to take back vendor loan notes to reduce day-one leverage.
• EBITDA growth that is management team-dependent without contractual retention: The S2S process compresses the time available for incoming sponsor management diligence relative to a primary buyout. Where EBITDA growth has been driven by one or two key individuals who have not signed new long-form employment and non-compete agreements as part of the transaction, incoming sponsors are pricing a key-man discount — typically structured as an escrow release conditional on 18–24 months of continued employment.

Conversely, premium S2S multiples — observed at 10.5–11.5x in specific sub-sectors — persist where the incoming sponsor can articulate a credible buy-and-build pipeline that the selling sponsor structurally could not execute, typically due to fund life constraints. A selling sponsor with 18 months of fund life remaining cannot close two add-on acquisitions and grow into a higher exit multiple. An incoming sponsor with a fresh fund can. That optionality gap is real, and sophisticated selling sponsors are increasingly quantifying it in the information memorandum rather than leaving it as an implicit buyer thesis.

What This Means for Sellers, Incoming Sponsors and LPs Navigating the 2025 Exit Environment

The secondary buyout European mid-market 2025 landscape is not a distressed market making do without strategic buyers. It is a market where the participants have become more sophisticated than the frameworks most investment committees use to evaluate it.

For selling sponsors, the actionable implication is process design: a well-run S2S auction with four to five credible incoming sponsors, a vendor due diligence pack that addresses the incumbency discount objection head-on, and earn-out terms pre-negotiated before final bids will consistently outperform a rushed process that prioritises speed over competitive tension. The 110bps premium PE buyers are paying over strategics in the same bracket (9.2x versus 8.1x, Lincoln Q4 2024) is available — but not guaranteed to sellers who rely on the buyer’s goodwill rather than process discipline to extract it.

For incoming sponsors, the discipline required is thesis specificity. A generic “operational improvement” narrative does not justify a 9x entry in a business that has already been institutionally owned for five years. The value creation story must be demonstrably new — whether international expansion, a concrete M&A pipeline with identified targets, or a technology investment that the selling sponsor’s fund model did not support. LPs are increasingly capable of distinguishing between these two narratives at LPAC level, and the funds that consistently win S2S processes with credible specific theses will find fundraising in their next vintage meaningfully easier than those whose S2S entry rationale was primarily defensive.

For LPs, the 180bps IRR gap relative to primary buyouts (HEC Paris/INSEAD 2024) is the benchmark to hold GPs against — not a zero-gap standard that no S2S transaction can meet. The more productive analytical frame is not “is this an S2S?” but “what is the specific value creation mechanism, and is the entry multiple justified by the risk-adjusted upside available in the next hold period?” That question, asked rigorously at IC and LPAC level, is a more reliable filter than the categorical bias against sponsor-to-sponsor transactions that has cost LP portfolios meaningful return for the better part of a decade.