Three Characteristics of Great Independent Sponsor Funding Partners


Selecting the right financial partner is essential for independent sponsors. Unfortunately, we often hear horror stories from sponsors about financial partners who re-negotiate deals, pull out at the last minute, or become less than ideal partners after a deal closes.

We often see our clients ask us: What sources of capital make the best partners for unfunded sponsors? What should fundless sponsors look for in a funding partner? What type of funding source would best suit me and my offerings?

Here are 3 characteristics shared by major independent sponsor funding sources:

1. They offer a fair independent sponsor economy

The economic parameters offered by the independent sponsor (transaction/promotion fees, carried interest or ongoing ownership/management fees) are designed to reward the sponsor for the value provided and to provide an incentive to grow the acquired business.

If you bring in an exclusive deal, at an attractive valuation, with a strong management team and a plan for growth, you should be rewarded with superior no-funds sponsor economics. Why is anything less than this reasonable or acceptable?

Be careful not to fall into the trap of accepting a below-market economy if you can avoid it. Many long-standing and well-known fundless backers often take advantage of their unfunded counterparts, especially new sponsors or those who don’t go through a tight capital-raising process.

Any rejections from a source of capital such as “Well, that’s an over the top deal for us” or “That’s not what we do” means they’re probably not a good fit for you or your deal.

2. They embrace the independent sponsor model

The ideal funding source includes independent sponsor model because they want to, not because they have to.

Let’s face it, not every SBIC, family office, or private equity fund really wants to invest with fundless sponsors, but as the market for independent sponsors has grown, it has become more difficult for companies to private equity to ignore as a viable source of deal flow.

You need to ask yourself the right questions: how many independent sponsor deals have they done? What savings have they provided to sponsors in the past? What are their criteria for fundless sponsorship deals? How do they see your role after the deal closes? Depending on their answers, you can decide if they really want to work with you…

3. They provide more than just debt or equity

A great financial partner brings more than the capital needed to complete your transaction.

The best sources of financing are strategic – they will enable growth by financing complementary acquisitions; they have useful connections with industry; they have insight into best practices for growing a business.

Source by Greg Tobben

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