Maximizing Returns in Independent Sponsor Deals: Takeaways From an Expert Webcast Panel

On October 21, Robert Connolly, LP partner and leader of LP’s Independent Sponsor team, joined an Expert Webcast panel, “Maximizing Deal Returns with Independent Sponsors,” to discuss what it takes for an independent sponsor to win a deal and generate returns after closing. Robert was joined by Sylvie Gadant, Partner and Practice Leader, Transaction Advisory at Citrin Cooperman; Joe Solari, Managing Director at ZRG Partners; Patrick Stroth, National Practice Leader, M&A/Transaction Liability at The Liberty Company Insurance Brokers; and Ben Brandes, Founder of NewOrigin Investments. Alex Kasdan of Expert Webcast moderated.

Robert’s key points included:

• The model has grown up. The independent sponsor market has moved from the “Wild West” to an asset class of its own. It is more professional and more institutional than it was 15 years ago when Robert started in the space.
• Talent is leaving private equity. As funds move up market and hold portfolio companies longer, mid-career professionals see that their share of the carry may never pay out. Many are leaving to put their experience and relationships to work on their own deals. Other financial professionals and operators are doing the same, using their backgrounds to find companies where they can create value.
• Capital is following. An increasing number of investors are seeking to invest deal by deal in the lower middle market instead of committing to a blind pool. They can choose companies they believe in and judge the value creation case for themselves. That capital is creating more opportunities for sponsors, and more funds are now being raised specifically to invest in independent sponsor deals.
• Sellers keep coming to market. Demographic and growth pressures will keep pushing business owners to look for an exit or liquidity, and more of them are finding it with independent sponsors.

The panel also covered:

• Trends in deal size, returns and industry specialization
• When to line up capital partners relative to the letter of intent
• How to manage broken deal costs
• When representations and warranties insurance (RWI) should enter the process, and how risk allocation in independent sponsor deals differs from institutional private equity deals
• Co-sponsorships between experienced and emerging sponsors
• Where independent sponsors have an edge over institutional private equity in a competitive process
• Recruiting executive talent and pairing it with capital to win deals and drive post-closing value

Robert Connolly and LP’s Independent Sponsor team have represented independent sponsors and their capital providers since the early days of the model. Robert also publishes the Independent Sponsor Series, a set of interviews with sponsors and capital providers, and is a frequent speaker and panelist at leading independent sponsor conferences, including iGlobal Forum and the SBIA’s Independent Sponsor Forum.

Watch “Maximizing Deal Returns with Independent Sponsors.”

To discuss a transaction as a sponsor or capital provider, contact Robert Connolly or another member of LP’s Independent Sponsor team, or read the Independent Sponsor Series interviews.