Independent Sponsor Model Gaining Traction

For sellers, navigating a market of different types of potential buyers or investors can be uncharted territory. There are subtle yet material differences among different types of financial buyers, all of which may identify themselves as “private equity.” Understanding a buyer’s motives and business model can be extremely helpful in evaluating whether you should spend time and energy exploring a potential transaction.

Changes in the market and investing landscape over the last several years have given rise to a new hybrid business model. According to a new Forum article at Axial.net, the prominence of independent sponsors has continued its steady increase in popularity among private equity industry participants.

According to the article’s author, John Fruehwirth, this independent sponsor hybrid model, “combines the rigor of traditional private equity (investment acumen and portfolio management) with stronger LP investor alignment on several core issues such as fees, carry and discretion to review each investment opportunity.”

With a focus on execution and portfolio monitoring, it’s not uncommon for each deal in this hybrid model to have different investors. Subsequently, there are generally fewer deals with an emphasis to maximize returns on each one.

Mr. Fruehwirth describes these three types of buyers/investors in the following chart:

Investor Chart

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Fruehwirth observed that the independent sponsor model first started gaining traction in 2008 when the recession prompted private equity investors to look for better limited-partner investor alignment with traditional private equity.

To read the full article, please visit the Axial.net Forum.


Having transacted over 75 times with various types of buyers, SDR can help you navigate this interesting and changing landscape. Creating a competitive process designed to encourage all buyers (regardless of type) to make their most compelling offers helps maximize shareholder value and minimize risk of failure to close.

Visit our Sell-Side Advisory page to learn more.