Alteration in Global Investment Scene by Individual Backers
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In the world of private equity, a new breed of players is making waves - the independent sponsors. These individuals or small teams, unlike traditional private equity firms, seek to acquire companies on a deal-by-deal basis without a committed fund or pre-committed capital[1].
The Process of Independent Sponsorship
The process of independent sponsorship involves several key steps. First, they identify a target company and execute a Letter of Intent (LOI)[1]. Next, they conduct detailed due diligence and negotiate acquisition terms[1]. Afterwards, they present the investment opportunity to potential investors, such as family offices or private equity firms, to raise the equity capital required for the transaction[1]. Once funding is secured, the acquisition is executed, often through a special purpose vehicle (SPV)[1]. Post-acquisition, independent sponsors take an active role in managing and growing the business to maximize value[1].
Flexibility and Opportunity
Unlike traditional private equity funds with committed capital and predefined deployment schedules, independent sponsors enjoy flexibility to be opportunistic and patient in their investments[3]. They are not tied to the typical pressures of a fund lifecycle or pre-set return timelines, allowing alignment with sellers, particularly in family or founder-owned businesses, and a disciplined, quality-focused investment approach[3].
Streamlining the Process
Specialized service providers offer tailored services for independent sponsor transactions at more accessible price points than traditional advisory services[2]. Platforms like CapitalPad streamline the matching process between sponsors and investors, reducing the time-consuming aspects of capital raising[2]. New digital platforms, such as Axial, Sponsor Match, Syndicately, and others, are speeding up deals by linking sponsors and investors directly[2].
Diversifying Portfolios
Independent sponsors help diversify portfolios by hunting for opportunities wherever they see value, leading to deals in various industries and regions[2]. As independent sponsors continue proving their ability to generate attractive returns, the capital available to strong performers is expanding substantially[4].
Transparency and Trust
Transparency about past performance builds credibility with sophisticated investors. Sponsors who openly discuss challenges they've faced and how they've addressed them often inspire more confidence than those presenting perfect narratives[4]. Co-investment networks help sponsors assemble investor groups more efficiently[2].
The Appeal of Independent Sponsors
The independent sponsor model appeals to backers who want transparency, dealmakers who value speed, and business owners seeking tailored terms[5]. As more opportunities open up, the independent sponsor model offers a unique chance for individuals and small teams to participate in this transformation, with fewer gatekeepers and more paths to success than ever before[6].
References
[1] "What is an Independent Sponsor?". MergerTech. 2021. [Online]. Available: https://www.mergertech.com/blog/what-is-an-independent-sponsor/
[2] "Independent Sponsors: The Rise of Deal Origination". PitchBook. 2020. [Online]. Available: https://pitchbook.com/news/articles/independent-sponsors-the-rise-of-deal-origination
[3] "Independent Sponsors: A New Breed in Private Equity". Bain & Company. 2019. [Online]. Available: https://www.bain.com/insights/independent-sponsors-a-new-breed-in-private-equity/
[4] "Independent Sponsors: Navigating the Evolving Landscape". KPMG. 2021. [Online]. Available: https://home.kpmg/us/en/home/insights/2021/03/independent-sponsors-navigating-the-evolving-landscape.html
[5] "The Independent Sponsor Revolution". Deal Flow Media. 2020. [Online]. Available: https://www.dealflow.com/deal-flow-media/the-independent-sponsor-revolution/
[6] "The Independent Sponsor Model: A New Era in Private Equity". Merrill Corporation. 2021. [Online]. Available: https://www.merrillcorp.com/en/insights/the-independent-sponsor-model-a-new-era-in-private-equity
- Global trade in businesses can benefit from the independent sponsor model, as it allows for deal-by-deal acquisitions by individuals or small teams, providing a flexible and opportunistic approach to investing.
- In the realm of business financing, independent sponsors can help diversify portfolios by pursuing investments in various industries and regions, potentially generating attractive returns that draw in more capital.
