A 2018 survey and report by Citrin Copperman shows the continued growth and development of the independent sponsor model in private equity investing. Independent sponsors are gaining popularity due to their flexibility, focus on quality of individual investment opportunities, and strong alignment with capital partners.
“YOU CAN’T PLAY PORTFOLIO THEORY WHEN YOU ARE AN INDEPENDENT SPONSOR. EVERY DEAL HAS TO STAND ON ITS OWN MERITS.”
Most significantly, in our opinion, is the continued trend of independent sponsors with backgrounds in industry. The report shows that 50% of independent sponsor principals have a background in Operations/C-Level Management, as opposed to the earlier days of sponsors coming predominately from PE and IB backgrounds.
Success of the independent sponsor model has generated increased interest and even competition from capital providers, with strong participation from family office investors, especially early in the life of the sponsor. In fact, 70% of independent sponsors in their first 2 years of operations are working with family offices and high net worth individuals. By the time they are more than 5 years in operations, many still retain family office relationships but have brought on capital from traditional PE firms (41%) and Mezz Funds (51%).
Of course, independent sponsors, like their private equity counterparts, face the challenges of competition for deals in a sustained sellers' market, as well as the pressure of sufficient deal sourcing activities at attractive valuations despite the limited internal resources for independent sponsors. Many, though, will continue to thrive by focusing closely on a specific sector where the principals have a proven track record and an established professional network.
With over 20 years of industry experience as senior operations executives, FRAMCOR makes direct investments and works as an independent sponsor for private equity investments into defense and government contractors providing critical professional services to the U.S. both domestically and overseas. See more about our investment focus here.
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