Independent Sponsor Series: Ryan Sullivan of North Park Group Discusses the M&A Outlook and Offers Advice to Business Owners and Independent Sponsors (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 Ryan Sullivan, Managing Director of North Park Group, a private family office investment group of business operators that focuses on acquiring family-owned, US-based manufacturing and distribution businesses to hold and grow them. Ryan has extensive experience across diverse industries, a proven track record of increasing profitability and market share, and a keen ability to develop strong management teams. In this second of a two-part Q&A, Ryan he offers insights on the current M&A outlook and advice to business owners and independent sponsors. In part one, he shared North Park Group’s unique investment strategy and long-term approach.

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

How do you see the M&A market evolving over the next 12-24 months, particularly in the manufacturing and distribution sectors? What macroeconomic factors or trends are most likely to influence deal activity in your focus areas?

M&A is weird right now with the tariffs. Everybody imports. Everybody buys stuff, so even if you’re sourcing everything in the US, it’s been impacted by tariffs. I found it easier to operate during COVID. The daily policy changes from the White House are making things very hard because the rules are changing daily. That’s making it very hard to get too far down the path on many acquisitions where there may or may not be a significant amount of impact because of tariffs. For me, it’s a little harder right now than COVID was. During COVID, I had more visibility of companies and could adjust and move forward.

Like it or not, it’s also a good time to be in US-based manufacturing. That’s a space we play in, so that’s positive for us. And we are buying the business for 20-30 years. If this year’s horrible, we can look at a five-year average, and if it makes sense, I believe we’ll get back there. Because of our time horizon of owning a business for decades, we’re a little less sensitive to three- to six-month or two-year trends. We look at five-year trends from an economic perspective and a business perspective. That makes us more of a stable buyer than people with a short-term hold approach.

What advice would you give to business owners considering selling their business to an independent sponsor? 

It’s a crazy space now. Twenty years ago, not many people bought businesses; now, everyone I meet says they’d like to buy a business. I talk to many people doing ETA (entrepreneurship through acquisition) or independent sponsors, and I often ask them why they think they should run this business. They don’t necessarily have the resume or the background to show they can successfully buy the company they are considering buying.

Business owners should think long and hard about that. They should think about what they want to have happen to their business after they sell it. What confidence do they have that the person they’re picking to buy their business can close the transaction?

We tried to buy Spill Stop in 2023, but they picked somebody else. That transaction didn’t close, and I bid again. He picked somebody else again. But that transaction did not close, and in 2024, I bought Spill Stop. If he had picked better the first time as an owner, it would have been better emotionally and financially for him and his company. Twice, he picked a higher number or somebody that didn’t include many deal terms in their LOI, and something blew up those first two transactions.

It’s hard to sell a company, and sellers should spend much more time getting to know the person. I’m always amazed when a seller wants to see an indication of interest but hasn’t gotten on the phone with me yet. They want a draft LOI but haven’t let me visit the site or had lunch with me yet. I often walk away from those processes because I don’t want to get into that transaction with a seller I don’t know. And I can’t believe they’d want to do a transaction with me if they don’t know me.

Business owners should spend more time getting to know the people talking about buying their business instead of looking at the numbers behind it. North Park Group does not re-trade a deal. If I sign an LOI, I will close per the terms of that LOI. I put 98% of the commercial terms into an LOI. I don’t want to negotiate after the LOI; I want to partner to close the transaction. Many business owners selling their business don’t realize how frequently people try to re-trade after an LOI, or they think they’ll be able to manage through it. They’re just looking at numbers and picking the higher one, and then a month later, they’re re-trading the number, and it’s negotiation after negotiation. We don’t do that. We put it all upfront. I don’t re-trade, and I won’t be re-traded. So, I tell sellers not to call me back in a month and tell me they want to change terms because I will say no. We agreed on the terms. We shook hands, which is worth more than the piece of paper.

For most of your sellers, is it a clean break? Or do you have some of them roll and continue with the business?

We’ve done some that roll. It’s harder with the SBA, because there are a lot of rules. So, it takes a lot of conversations, or we put together complex deal structures. It takes a lot of transparency and honesty because sellers will request something, and I’ll say, “Unfortunately, the SBA says we’re not allowed to do that, but we can do this, which accomplishes the goal of what you’re trying to do.” If it’s a good relationship and they trust us, we can get through that conversation. If they think I’m negotiating, we can never get through those conversations.

For instance, with the Arcadia deal, the son rolled, so we made it a stock transaction. We love to have people continue to participate. We’ve had sellers invest in other North Park Group companies. Each business is a standalone legal entity. Maintaining ownership in their business is hard, but many times, we buy a business, and a year later, we buy another business. Our investors have become people we’ve bought businesses from because they know and like us. They want to put some money to work and understand our long-term hold. It’s great to see people we bought a business from investing in our next acquisition.

How can business owners best prepare for an acquisition process? 

With the types of businesses we buy, sellers often haven’t done many transactions. They purchased or got into a business and ran it for 30-40 years. Many of them are unprepared for the workload and haven’t necessarily picked great advisors. They might be using the lawyer they’ve used for the last 30 years, who might be a good small business corporate attorney but is not a transaction attorney. Or they’re using the accountant who’s done their taxes but is unprepared to do financial diligence for an acquisition. I’ve pushed a lot of sellers to think about the lawyer or accountant they’re using. If their lawyer doesn’t have transaction experience, it becomes expensive for us. The transaction is smoother, easier, and cheaper for everybody if lawyers on both sides know how to do deals. I’m trying to protect the deal and ensure something that shouldn’t be a sticking point doesn’t become one.

Sellers need to get the right advisors, who are often different than those they used when they owned and operated the business. It’s also essential to prepare for the workload of selling a company, which is a full-time job. It can be a huge emotional and physical burden on sellers, which is sad. We’re trying to get the transaction done so we can take care of their baby for 30-40 years, and we want that process to be joyous, happy, and not stressful.

What advice would you give to someone considering the independent sponsor model, especially those interested in a long-term hold strategy? 

You can fund any deal you want to fund – there’s always somebody out there who will give you money – but you need to think long and hard about what you want to do. What position do you want to be in? What level of control do you want? What strings are you okay with being attached to that money?

We’ve had people offer North Park Group $5-10 million checks, which always come with strings attached. Many people offer us money with strings attached. They want different financial or legal terms. We took the approach of keeping it simple, which is important to us. We’re perfectly okay with not taking money that has strings attached. Every investor has signed one subscription agreement with no side letters or side deals. Everyone’s the same whether they invested $5,000 or $1,000,000.

Many independent sponsors are very excited about buying and participating in a business, but I don’t know if they’ve really thought about what the next 5-10 years will look like. Who are they partnering with? What strings are attached? What decisions do they get to make versus what decisions does somebody else make?

A good friend of mine did a search, found a business, got funded to buy it, and he’s been running it for 5-6 years. He wanted to sell the company, but the funder didn’t want to sell, so he’s still operating the business. He brought buyers to the table, but they didn’t like the offers. He hasn’t been able to get liquidity because he doesn’t hold a vote on whether they sell. So, it was great up front, but he doesn’t really have control and now he’s back in that employer-employee relationship even though he found the deal because they funded the deal. He’s in the employee mentality debating whether to quit, instead of an owner mentality because he doesn’t have control. Independent sponsors can fund a deal. They can pass the hat. They can find somebody to write a big check. But they need to think long and hard about the terms under which they’re willing to do that.

Are there any common mistakes you see new independent sponsors make? 

I don’t know the actual metric, but I would guess 90% of the people who say they want to buy a business never buy one. People don’t realize how hard it is to successfully find a business and close the deal. They don’t realize the effort or financials that go into it.

Last year, we had one transaction not close when we were two weeks from closing. The terms in the LOI and legal docs were done, and the seller said there was nothing we could do to make them sell it. We offered them more money, but they said it wasn’t about money. They didn’t want to sell anymore. That cost us $250,000-$300,000. Many independent sponsors don’t realize that not all deals close, and if they don’t close, there are still a lot of bills to pay. I don’t know if many of them understand the real economics of what they’re getting into. They know the “Instagram economics,” not the real-life economics.

What were the biggest challenges you faced when starting out, and how did you overcome them? 

The lack of a track record was instantly the hard part. Investors, sellers, and sometimes even business brokers want you to have a track record. So, trying to craft that track record was a challenge. Once we got our first acquisition done in May 2022, which was Electron, we had to quickly start to show that as a successful transaction. I didn’t want to wait five years to do an exit to show people how much money they made, so I wrote a check to investors three or six months later. The minute we started writing checks to investors, they realized what we told them was playing out. We created a track record in 12 months instead of waiting for successful exits 5-7 years down the path.

In the early days, I underestimated the importance of marketing and awareness to make people realize we were legit people who could do a transaction. We hadn’t put together much marketing material. We hadn’t tried to tell our story. We were just looking at CIMs, and we lost a few deals because we weren’t funded. They didn’t know if we could raise the equity, so they went with somebody else – even though we had already bought two businesses. It goes to the risk profile. The seller is trying to decide whether to go with the buyer who has money in the bank or investors who can provide the funds.

To address that challenge, we changed how we presented ourselves to sellers. Now I tell sellers we’re fully funded, backed by 40-50 investors, and have a wait list of 30 investors. Those investors are committed to funding this next deal. It was about vocabulary and getting the chance to explain who we are and how our model works, which is different from other models. Sellers might have met independent sponsors or fundless sponsors, but that’s not us. I’m not signing the deal and then looking for somebody to fund it; I’m already funded.

After practicing that enough with brokers and sellers, they now see us as a fully funded organization, which has helped our position when negotiating to win an LOI. I didn’t understand or appreciate how important positioning North Park Group in the M&A ecosystem was to deal flow and successfully discussing a deal with a seller.

For more information on Ryan Sullivan, visit his bio. For more information on North Park Group, visit their website.

To read other articles in this series, please see here: Insights | LP (lplegal.com)

Interested in participating in a future interview series? Please contact Robert Connolly.