By David Acharya, Partner
AGI Partners, LLC
Both the efforts of independent sponsors and family offices are making more of an impression in today’s deal business than ever before. In addition to funded private equity firms working with independent sponsors to generate deal flow, family offices want to invest directly into companies with independent sponsors more often.
What makes independent sponsors attractive to family offices?
- It’s the accessibility of differentiated deals typically not seen by a family office or even a funded private equity firm. The independent sponsor may have relationships stemming from an industry or geographical expertise that exposes a family office to previously unrecognized investment opportunities — possibly to companies that are not even officially for sale. In addition, the independent sponsor is motivated to hunt for differentiated deal flow and/or limited auction situations.
- Independent sponsors can offer “day to day” operational expertise and/or industry expertise that many family offices find helpful, increasing the likelihood of market outperformance and an attractive exit. This can be of tremendous value in the case of a family office without people in-house to source, perform due diligence, complete the underwriting, and manage the post-closing of the investment. It is also a two-way street here: a family office with experience in those industries can act as “strategic LPs” (introducing portfolio companies to new customers, geographic markets, etc.) to independent sponsors.
- Family offices often avoid management fees from unused capital commitments that are waiting to be drawn down given the deal optionality structure – first sourcing and diligencing opportunities before offering them on a discretionary basis.
- The independent sponsors’ interests are generally highly aligned with LP interests because the independent sponsor’s profit participation typically derives from a much smaller portfolio than that of a typical fund manager, so that the value of mediocre performance or failure is unacceptably heavy.
Just how have independent sponsors grown in size? According to a respected private equity media publication , $22 billion of non-fund private equity investments were executed in 2015. A survey conducted with independent sponsors across the country stated that over 54% of participating firms have firm longevity of five years or more. The market has recognized its presence because it is here to stay.
ACG New York has recognized the growth of the independent sponsor community and has actively solicited independent sponsors as panelists as well as ensuring their participation at various deal-making conferences throughout the year involving funded private equity firms, family offices and investment bankers. The respect for the independent sponsor community is here in the ACG New York community!
David Acharya is the EVP of the ACG New York board and Partner at AGI Partners LLC (www.agi-llc.com); a NYC based middle market private equity firm. He has completed platform investments and executed numerous add-ons as an Independent Sponsor.