Independent Sponsor Explanation to Sellers

searcher profile

March 07, 2025

by a searcher from Louisiana Tech University in Orlando, FL, USA

At 4 Pillars Group we are independent sponsors. We raise deal by deal with no dedicated fund. We partner with operators and take a minority position. After close we support the operator with long term strategy and pressing needs.

I have found it is very important to be upfront with sellers. I am not going to run your business nor will you see me every day. I am helping to raise money, close the deal, and support the operator. I always tell them upfront so there is no bait and switch situation. This community understands that but 99% of the population doesn’t. We don’t over complicate it because it’s not overly complicated!

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Reply by an investor
from University of Pennsylvania in Charlotte, NC, USA
Unfortunately, it is overly complicated, largely because the term independent sponsors is frequently misused. Or at least means different things to different people. As the term is traditionally used, an independent sponsor isn't a finder, nor a searcher, nor an operator, but is better thought of as a private equity group that does not have a committed capital base (i.e. a fund.) The sponsor creates an investment vehicle and gathers capital from other persons/entities to effect an acquisition. That investment vehicle is the majority investor. The independent sponsor itself usually has some skin in the game, although it may not actually be putting its out-of-pocket cash into the deal.

In addition to raising the equity capital, the independent sponsor structures and executes the transaction. For this reason, independent sponsors are usually experienced PE or M&A professionals. (However, if an independent sponsor raises most of the capital from a funded private equity group, that PEG is going to take the lead in structuring and executing the deal.) Sometimes an independent sponsor partners with a searcher who will run the acquired business. Other times, the operator is a proven C-level executive, often in the targeted industry. The independent sponsor usually has a board seat, has reporting rights, etc., and often - if they bring value-added business experience to the table - participates in advising on strategic direction of the acquired business.

I fully agree with being transparent and explaining to a seller the role of an IS. However, it's best that the IS itself be clear on what it does and doesn't do ....because as you say above "I am not going to run your business" but a seller might get a different idea from your website: "We are far more than hands off investors, we are operators."

For those who have a different take on what an IS does, I realize that some folks use the term more loosely or differently, or run some other variation than outlined above. If you do, no problem. Call it whatever, or better yet don't use the term at all, and instead just explain what your role and your professional experience is.
commentor profile
Reply by a searcher
from Stanford University in Dallas, TX, USA
If an independent sponsor has a proven track record of acquiring similar-sized businesses, then they can demonstrate how past deals were financed, easing seller concerns. For first-time acquisitions, it’s essential to outline the process for securing capital to reassure sellers that funding is not a significant risk. In larger transactions, sophisticated brokers increasingly recognize the role of independent sponsors, reducing concerns about deal execution.

It remains critical to articulate how the sponsor will add value, why you are the right partner, and how you will finance the deal. Additionally, you can highlight the flexibility of the independent or direct private equity sponsor model, including the ability to hold investments longer—or even indefinitely—without the constraints of a fixed fund structure.
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