Independent Sponsor and Leverage

June 22, 2024

by a searcher from University of Virginia-Darden - Darden School of Business in Charlottesville, VA, USA

I'm working on the independent sponsor model of ETA. I run a family business and want to take the success I've there and apply those skills elsewhere. I've been able to source few deals but I'm looking at the debt piece. I was hoping to know how others handle that. Do you as the searcher provide the PG? Do your sponsors provide the PG? Is the there away around the PG.

A lot of the appeal of an independent sponsor modeldeal goes a way if you have PG. With that said I am planning to invest a sizeable portion of my networth into the deal. I also realize that the economics are completely different and the equity portion is going to be much lower.

Reply by an investor
from University of Pennsylvania in Charlotte, NC, USA

Could you explain your definition of independent sponsor? That is necessary so that people can give you appropriate advice. Historically, independent sponsor and self-funded searcher are understood (by most) to be different things. An independent sponsor typically has significant experience as an executive with P&L responsibility and operational background, usually in the targeted industry, and/or has significant direct experience in M&A as an investment banker or private equity professional Independent sponsors usually are looking at larger deals than self-funded searchers - $30M and up - and will be seeking institutional capital from PEGs, family offices, etc.

Reply by a searcher
from Columbia University in Jacksonville, FL, USA

Yeah, if you stay above $1M EBITDA, you can get an SBIC loan. If you are > $3M EBITDA, very few banks will make you PG unless you are the sole owner. You will need more equity and rates will be higher, but you take the PG off the map. There is also buying a big arse house, giving your kids an irrevocable trust, etc. if you want to shield assets.

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