Closing deals as an unfunded sponsor

searcher profile

February 18, 2022

by a searcher in Chicago, IL, USA

I am interested to learn peoples experiences in working with family offices and PE firms in order to close deals as an independent sponsor (unfunded).

I understand that there are offices which provide both equity and senior debt to independent sponsors and in return, the sponsor receives a closing fee and ongoing management fees.

I have heard stories where Independent Sponsors have multiple LOIs signed but could not close any of the transactions due to the appetite, or lack there of, from the various offices.

How hard is it to get these deals done? What have peoples experiences been?

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commentor profile
Reply by a lender
from The University of Michigan in District of Columbia, USA
They are sometimes difficult to get done but they are getting done if certain things are in place. 1) The sponsor needs to have strong industry experience.- preferably operating experience. 2) The deal numbers have to make sense i.e., sensible valuation, debt service coverage, etc. 3) The business model has to be sustainable and have a competitive advantage. 4) In cases where the sponsor is raising outside capital from investors many lenders will not review a deal until the equity commitments are already there.

Some parties will provide equity (or a combination of equity and debt) but you may not be willing to give up the amount of equity that they require in order to make the deal work.
commentor profile
Reply by a searcher
from University of Pennsylvania in Indianapolis, IN, USA
If possible, it's helpful to cultivate a strong relationship with the potential sponsor(s) prior to finding the opportunities and take the time to really learn what they like rather than casting a wide net and signing LOIs that may not be of interest.You have to be very careful to take care with your own reputation as an acquirer otherwise word will get out that you/your company cannot close deals and that could box you out of opportunities in the future.
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