Growing Traction of Independent Sponsors in the Middle Market

By David Acharya

Independent sponsors –  also known as  private equity groups without a traditional committed pool of capital – have garnered increasing acceptance among lower-middle market and middle market investors. Independent sponsor capital generally comes from four potential sources: private equity firms, friends and family, hedge funds and family offices.

Depending on the deal, some sources may be more suitable than others. For instance, when it comes to established private equity firms with capital that is ready to be deployed, Independent Sponsors help source quality deals and provide operational “boots on the ground” talent and industry expertise, serving as a “value added” partner in the transaction process. Family offices may be more likely to participate in smaller deals and permit the independent sponsor to run the deal and handle the operational role.

What makes independent sponsors attractive to capital partners? First, it’s the exposure to deals that may not be apparent to the capital partner. The independent sponsor may have relationships stemming from an industry or geographical expertise that exposes a capital partner to previously unrecognized investment opportunities — possibly to companies that are not even officially for sale. Second, independent sponsors can offer operational and/or industry expertise that many investors, established private equity firms or otherwise, find attractive. The skill set the independent sponsor brings to a deal post-closing may increase the attractiveness of the investment and provide operational efficiencies that ultimately accelerate the success of the investment.

ACG New York has recognized the growth of the Independent Sponsor community and has organized a yearly luncheon covering important topics with the Independent Sponsor community and I will be chairing and moderating a panel of leading experts.  The 3rd Annual Independent Sponsor Luncheon will be held in April 2015.  See you there!

David Acharya is a board member of ACG New York  and Partner at AGI Partners LLC (www.agi-llc.com); a NYC based firm specializing in private equity and special opportunities investments. He has completed platform investments as an Independent Sponsor.

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