Over the last few years, we’ve noticed a significant growth in the popularity of the independent sponsorship model.
While this model used to be seen as merely a stepping stone for those with experience in the middle market to start their own fund, it has now become a generally accepted alternative investment model.
What is an Independent Sponsor?
Independent sponsorship is a broad category that covers transactions in which the sponsor sources a deal prior to seeking financing partners to close it. Usually, the sponsor is a private equity professional, a middle market finance expert with access to unique opportunities, or an individual with operational expertise who wants to source an acquisition within their industry.
Why It’s Popular
The independent sponsor model offers a significant level of flexibility compared to traditional private equity investment models. While private equity groups offer deep expertise in fostering successful transactions, they’re restricted by the demands of managing a committed fund, as well as the financial regulations that specifically target them, such as Dodd-Frank.
On the other hand, independent sponsors are often able to find deals that private equity firms can’t, facing few barriers to facilitate the transaction. Because they usually source their potential transaction through industry relationships, they can credibly engage with target management to complete due diligence and negotiate recapitalization or buyout.
Operational Expert Opportunity
Based on our experience, many independent sponsorship opportunities stem from the retirement of a business owner. Usually, a local industry expert who has a relationship with the owner, maybe even someone in a management position at the company, uses this model to acquire the company. This gives the owner the liquidity needed to retire and gives an individual with experience with the company the opportunity to run it.
No other investment model offers such a direct opportunity for individuals involved in the operational side of a business to take a principal role in facilitating an acquisition.
Attractive “Off-Market” Deals for Capital Sources
The number of capital sources looking to fund independently sponsored transactions is constantly growing, which is, in turn, helping to increase the popularity of this model. The reason private equity firms, family offices, high net-worth individuals, and even hedge funds are increasingly taking notice is because independent sponsors offer these investors prime deal sourcing opportunities.
Most often independent sponsors bring “off-market” deals, which are deals that are not yet publicly marketed to investors, to the table. While such a source of potential deals used to be looked down upon, investors have slowly realized that independent sponsors’ unique industry expertise and relationships coupled with having much of the work done at the frontend of the deal makes independently sponsored transactions highly attractive.
We’ve Had Success
At Symmetrical, we’ve had extensive experience working with independent sponsors to facilitate their transactions.
If you’re looking to buy a business or source a deal and need an expert to help you navigate the complex aspects of such a transaction, contact us today.