Independent Sponsor Series: A Conversation with Alexander Foshager and John Mensing of Monroe Street Partners (Part Two)

To help businesses, investors, and deal professionals better understand the evolving independent sponsor landscape, Robert Connolly – a partner in LP’s Corporate Practice Group and leader of LP’s Independent Sponsor team – shares a series of conversations with independent sponsors, capital providers and other professionals.

Below is his conversation with Alexander Foshager and John Mensing at Monroe Street Partners (MSP), a Chicago-based investment firm that partners with family and founder-owned, lower-middle market businesses across the business services and industrial sectors. As co-founder and managing partner, Alex leads transaction execution, diligence, and value creation efforts on MSP’s portfolio companies. As a managing partner, John leads transaction execution and diligence efforts, relying on his 10+ years of experience leading investments in the lower-middle market.

In this second of a two-part Q&A, Alex and John discuss ways to maintain momentum, explain key attributes of targets, and offer advice for business owners and new independent sponsors. In part one, they shared Monroe Street Partners’ background, investment approach, and differentiation factors.

The responses below have been edited slightly for brevity and clarity.

How do you maintain momentum?

John Mensing: As the independent sponsor landscape grows increasingly competitive, maintaining strong momentum in deal sourcing and execution is more important than ever. For us, that momentum stems from one core differentiator: our founder and family-first alignment. It genuinely resonates with sellers. When we sit down with owners considering a sale, price is naturally a factor – but just as important is cultural fit. Our message of true partnership, flexibility, and long-term alignment consistently strikes a chord with founders evaluating who to entrust with their legacy.

We pride ourselves on working hand-in-hand with our portfolio companies to execute on strategic initiatives and value-creation plans. Our deal structures are intentionally designed to create significant upside for sellers, including meaningful equity rollover opportunities, what we often call the “second bite at the apple”. This seller-first mindset not only drives strong engagement from founders but has also led to numerous referrals from past sellers who have had a positive experience partnering with us.

Additionally, we’ve increased our focus on add-on acquisitions across our platforms. Add-on acquisitions – regardless of size – are often sourced through trusted networks and existing relationships, and because they’re typically smaller and more plentiful, they offer a steady pipeline of opportunity. We have found that ownership dynamics in these situations tend to be more flexible. In many cases, sellers of tuck-in acquisitions are ready to transition out of the day-to-day, and being integrated into a larger organization enables that transition. We have also empowered our management teams to actively build relationships and help identify these opportunities. MSP has had great success with this strategy and expect to close at least two additional add-ons across our portfolio by the end of 2025. Momentum in the add-on space continues to build, and it’s an important lever in our growth strategy moving forward.

What is your investment approach, and how do you typically identify and assess investment opportunities?

Alexander Foshager: The first thing we start with is assessing the strength and integrity of the founder and management team. We are trying to back outstanding teams and find CEOs who can be the leaders of real platform companies, not just small businesses. For us, the people behind the company are foundational. If we don’t believe in leadership or the founder, we simply will not move forward.

From there, we look within our network to identify whether we have the right operating partner or industry executive who can support us through the diligence process, help refine our investment thesis, and ultimately bring strategic value to the management team post-close.

Once we feel confident in leadership and our ability to add value, we quickly shift our focus to where the business can go next. Obviously, the opportunity must check the common boxes all sponsors look for. There is a certain type of revenue and profitability profile that everybody is focused on, but we really concentrate on the three or four high-impact strategic levers we can pull to meaningfully accelerate growth or improve performance. This could be executing on an organic growth plan and providing the capital needed to fund this growth. It could be strategic add-on acquisitions, which founder-run companies generally lack the ability to execute on alone. It often involves building the right team around our founders and adding the necessary human capital to support future growth.

Then we evaluate whether MSP is the right partner to help execute on these priorities. If the answer is yes, and we see a clear path to add value and have conviction that MSP is the right partner, then we really lean in and pursue the opportunity with conviction. It’s a little bit of a multifaceted approach, but once we have that conviction, we can move quickly and with purpose.

What are the key attributes of the target?

Alexander Foshager: The key attributes we look for in a potential target are straightforward but essential: a strong management team, a backable founder or CEO, and, most importantly, a clear and compelling reason why they need a partner now. We are not just looking for good companies, we are looking for companies that are at critical inflection points. There must be a sense of urgency and a defined opportunity for us to help unlock the next stage of growth. We need to believe that our involvement is not only additive, but essential.

We often view ourselves as the catalyst. While we are deeply involved and always willing to roll up our sleeves, our primary role is to align capital and operational resources with outstanding management teams and founders. Many of the opportunities we pursue involve bringing in the right human capital to complement a founder or helping to execute on an acquisition strategy the existing team could not execute on alone. We are not there to dictate how to run the business – we let the operators operate. Our job is to empower our management teams by putting the right people, strategy, and capital in place to help them achieve their vision.

How does Monroe Street Partners add value?

John Mensing: We add value with a culture of partnership and collaboration. We are hands-on with our management teams and are actively rolling up our sleeves and digging in to solve problems. We recognize and appreciate that every business is unique, but within the MSP ecosystem, the clear, consistent and repeatable process we can outlay at each portfolio company helps us maximize each investment opportunity. We provide a tremendous amount of resources to each of our portfolio companies.

The MSP team is small, but through our trusted group of industry executives and outside service partners, we are able to bring game-changing resources to our portfolio companies that they would  not otherwise have access to. This includes access to capital, operating expertise, add-on acquisition experience, human capital and people management, and financial reporting, to name a few. This is where we add a lot of value.

Alexander Foshager: In addition to being hands-on partners, one of the most impactful ways MSP adds value to our portfolio companies is by putting in place incentive structures aimed at driving behavior and decision making that is conducive to long-term value creation. Typically, we are structuring meaningful equity rollovers with the seller, ensuring that the founder remains invested in the continued success of the business. Additionally, and equally important, we always implement equity incentive programs for key employees – often for the first time in the company’s history – that are designed to be both economically meaningful and achievable. We try to push equity ownership as far down into the organization as possible, empowering employees to think and act like owners and reinforcing a culture of accountability, alignment, and shared success.

What factors do you consider when looking at a potential capital partner?

Alexander Foshager: MSP has partnered with a range of debt and equity capital providers to help effectuate our transactions. What matters most to us in a partner is their experience, specifically, whether they have operated in the independent sponsor ecosystem and understand the nuances of the lower-middle market. The lower-middle market is a fundamentally different environment than traditional up-market private equity. The deals are more bespoke, the dynamics are more personal, and success often requires patience, creativity, and flexibility.

Beyond just writing a check, MSP looks for value-added partners. Capital is abundant, but what’s scarce – and what we truly value – are investors who bring more than dollars to the table. Whether it’s operational insight, industry expertise, or access to a broader network, we gravitate toward those who can actively contribute to the growth of our portfolio companies.

As discussed earlier, one of the many advantages of the independent sponsor model is the flexibility it affords us, particularly around hold period and investment horizon. Most lower-middle market businesses we partner with require significant upfront investment, including general business professionalization, upgrading leadership, or accelerating growth initiatives. Our capital partners must share our long-term mindset and understand the investment commitment needed to build a durable platform.

What is the M&A outlook in the lower-middle market?

John Mensing: The lower-middle market has remained relatively insulated from broader macroeconomic headwinds, and we have seen deal activity steadily increase in 2025 after a handful of slower years. That said, buyers remain highly discerning, with a clear preference for high-quality businesses that demonstrate strong fundamentals.

Recent developments, especially around tariffs and shifting global trade policies, have introduced a layer of uncertainty. While the long-term implications are still unclear, we are closely monitoring how these dynamics may impact our portfolio and the companies we are evaluating.

Additionally, valuations have become increasingly bifurcated. Best-in-class businesses – particularly those with recurring revenue models, limited international exposure, and defensive characteristics – are commanding premium valuations. Conversely, average-quality assets are experiencing more muted buyer interest and are trading at more conservative valuations. The current market rewards quality and resilience more than ever.

What advice do you have for business owners?

John Mensing: I have had the unique experience of living three distinct investing lives – first with a traditional private equity firm, then with a single-family office, and now as an independent sponsor. For business owners considering a transition, I believe the independent sponsor model offers a more personal, flexible, and entrepreneur-aligned alternative relative to selling to a larger institutional fund.

When evaluating a potential sale to an independent sponsor, it is critical to look beyond just the purchase price. Strategic alignment regarding the future vision of the business is paramount – this is, after all, the culmination of your life’s work. We take that responsibility seriously. At Monroe Street Partners, we see ourselves as stewards of the businesses we acquire, and we prioritize fit above all else.

What sets us apart is the combination of trusted capital relationships that provide certainty of close, well-developed value creation plans, and a strong cultural alignment with founders. For sellers weighing a partnership with an independent sponsor, those three factors—capital certainty, a strategic growth plan, and cultural fit—should be non-negotiable.

How can a business owner prepare for the acquisition process?

Alexander Foshager: It goes without saying that the optimal time to sell a business is when performance is strong. One of the most common challenges we encounter is when owners begin exploring a sale because performance has weakened, or they anticipate future headwinds. Buyers can often recognize this quickly, and it naturally raises concern.

Our advice to owners is to seek a partner when things are generally going well. While it may not feel urgent in those moments, this is precisely when the business is best positioned to attract the right capital and strategic support to accelerate future growth.

Second, keep your financial house in order. Consistent tracking of key performance indicators and maintaining clean, reliable financial statements are crucial, even if a potential sale is not imminent. Buyers evaluate not just the future trajectory of a business, but also the integrity and consistency of its historical performance. Having trustworthy financials enables us to work more efficiently and effectively through diligence.

Finally, be prepared to clearly articulate your growth vision. Many founders have done an outstanding job building their business to where they are today but have not spent adequate time thinking about where they want to go next. We look to invest alongside great founders and CEOs with a compelling vision for the future. We can bring the capital, the operational firepower, and the M&A expertise, but it all starts with the founder’s vision and ambition. A clear, well-articulated growth strategy is essential to building a successful partnership.

What advice would you give new independent sponsors?

Alexander Foshager: This is a tough one to answer coming from a newer firm like MSP, but it is an important question as the independent sponsor model continues to mature. The lower-middle market has evolved significantly since we launched in 2022. There are likely twice as many active groups today as there were then. With increased competition, standing out is critical.

There are many paths to differentiation. This can include sector specialization, access to top-tier operating talent, unique sourcing strategies, creative financing structures, or bringing in your own leadership teams. For us, our edge lies in two areas. First, we have built a deep bench of trusted operating executives. These aren’t advisors on the sidelines – they are people we bring into deals to actively support diligence, drive value creation, and strengthen management teams from day-one.

Second, we have made a real investment in sourcing great opportunities. There are over 2,500 small business brokers and intermediaries in the lower-middle market, and we work hard to stay in front of as many of them as we can. With a small team, that level of outreach is no small feat, but the effort has paid off in a meaningful way.

John Mensing: Our advice to other independent sponsors is pick your angle and go deep. You don’t need to be everything to everyone. Just like you build a focused growth plan for a portfolio company, you should build a focused strategy for your firm and execute it with conviction.

What are some common mistakes for new independent sponsors?

John Mensing: One of the biggest misconceptions we have encountered, especially when talking with new independent sponsors, is the belief that the capital will always be available for a good opportunity. That sounds great in theory, but in practice, it’s just not true. People consistently underestimate the complexity and relationship-driven nature of raising capital. Investors back people – sponsor teams, management teams – not just deals. It’s a people business at its core, and that reality is often lost on first-time independent sponsors. Building a track record and fostering deep relationships with capital partners certainly helps, but even then, nothing is guaranteed.

The second common misstep, and I mention it because we have recently been approached by other independent sponsors struggling to close, is overpaying. Many newer sponsors get too aggressive on price to win a deal. We have seen deals signed up at valuations two to four turns above what we view as a fair, market price. I understand the eagerness to prove yourself with a first transaction, but investing is a long game, and one bad deal can end your career before it begins. Our philosophy is simple – we want to “win-at-bid”, and that starts with price discipline. Paying a steep premium doesn’t make you a good investor; it undermines your credibility. If you bring an overpriced deal to a capital partner, it raises questions about your judgment.

Lastly, we often see sponsors overestimating their operational capabilities. We run lean at Monroe Street Partners, but we are self-aware – we are not operators, and we do not pretend to be. That is why we rely heavily on great management teams and a strong group of outside executives. Too many first-time sponsors assume that a few years of investment banking or private equity experience gives them real operational insight. It doesn’t. My advice is to build a team that can fill those gaps. Lean on great operators and surround yourself with the right people. This model is hard enough without trying to do it all yourself.

Alexander Foshager: Be patient – a bad deal is much worse than no deal.

For more information on Monroe Street Partners, visit their website. For more information on Alexander Foshager and John Mensing, view their bios.

Interested in participating in a future interview series? Please contact Robert Connolly at rconnolly@lplegal.com. To read other articles in this series, please see here: Insights | LP (lplegal.com)