As an independent sponsor, how involved are you in the business? ($3-5M EBITDA range)
February 20, 2025
by a searcher in Montreal, QC, Canada
Hearing a lot of different opinions on the level of involvement for sponsors that acquire companies in the lower mid market.
Say you target companies in the $3-5M EBITDA range, what is the typical role of a sponsor? Are they working mainly ON the business, or are they tied down working IN the business?
Any personal experience you can share, or stories about your network? What are your key responsibilities as a sponsor to drive real value creation and growth in the business?
in Stuart, FL, USA
Especially for the crucial first 6 months. It takes about the same amount of time for employees, customers and vendors to get used to you, the new fixture at the business.
Also, if you gets leaks in the dam, it's pretty hard to stop the leaks if you don't know where the leak is coming from. Don't expect others with no ownership, to stick their neck out when it's "not their job". You own all the jobs, period.
From a lending perspective (if utilizing SBA) and you probably will be if buying under the 5,mm cap). SBA likes to see "boots on the ground". They do not like to lend to "semi absentee" or "passive in nature" businesses. (there are certain exceptions. Most lenders will want to see that you are actively running and managing the business. Some of the fastest defaults come from deals where the buyer thought they can buy a business not local to themselves and run it while keeping their full time job.
To Travis' point, these comments are referring to SMB's and deals that are mom and pop by nature. As you get into bigger deals, the rules change as the existing structure is more sophisticated.
from The University of Texas at Austin in Dallas, TX, USA