Independent Sponsors, or Fundless Sponsors, have been buying companies for little or no money of their own for years. Currently their numbers are at an all-time high and growing. Capital sources are recognizing this. Having realized the value a good Independent Sponsor brings to a transaction, capital sources have a lot of money ready to be deployed into deals of Independent Sponsors.
Here at Frisch Capital we work almost exclusively with Independent Sponsors. Whether it is helping them to raise the needed capital for a transaction, or assisting in structuring the deals, we have enjoyed aligning our success with the success of our Independent Sponsor clients. With well over $1 Billion of funds raised for Independent Sponsors over the past 20 years, Frisch Capital has made a lot of Independent Sponsors very successful.
So, who can become an Independent Sponsor? The simple answer is ... ANYONE ... anyone that has the ability to purchase a company. Being able to obtain an exclusive Letter of Intent (LOI) is the most important thing that qualifies someone to become an Independent Sponsor. They don’t have to have the capital (that is where Frisch Capital comes in). They just need the exclusive right to purchase a company at a certain price by a certain time. With that said, there are a few categories most Independent Sponsors fall into.
Previous industry or company executives, officers or managers make excellent Independent Sponsors. They have extensive experience and knowledge about a given industry that is a great value-add to the transaction, especially if it is in that industry or a related industry. They also know what it takes to run a company and have first-hand experience.
2. Private Equity Professionals
Private equity or finance professionals are another common group of Independent Sponsors. They are well connected and understand the financial side of a business. They comprehend a company’s numbers well, can see opportunities for growth and add-on acquisitions, and most importantly, they understand the process of successfully closing a transaction.
3. Entrepreneurs or Business owners
Entrepreneurs or previous business owners are a third common group of Independent Sponsors. They have been through the “trenches” and prior ownership of a business (whether successful or not) provides a huge amount of experience. This group of Independent Sponsors brings leadership and strategic know-how to the table that often enhances a current business.
4. Tactical Experts
Skilled people with expertise in a specific area such as marketing, operations, logistics etc. also make good Independent Sponsors. They often seek out companies that are lacking in their given area of expertise and are therefore able to bring a lot to the table.
While outlined above are four of the most common groups of Independent Sponsors, there are many more. An Independent Sponsor (as explained above) is anyone who has the opportunity to purchase a company. There are even individuals who go around getting a Letter of Intent and then just pass it on to a Private Equity Group with a fund and receive a fee and some equity in the purchased company for their troubles. They may not receive as much fees and equity as the four types of Independent Sponsors outlined above, but then they also have no ongoing role in the company. Nevertheless, they too are Independent Sponsors.
One final note, no matter what kind of Independent Sponsor you are, it is important that you engage professionals along the way, lawyers, accountants, etc. to help ensure you have the greatest chance of getting a great deal and a successful closing. We at Frisch Capital are such a resource to Independent Sponsors and even before you obtain your LOI, Frisch Capital can help review your process and help remove potential roadblocks to your success. Firms with experience assisting Independent Sponsors not only save time and money but know the market extremely well and can get their Independent Sponsor clients great deals by bringing in competing bids and term sheets.