Searcher vs. Independent Sponsor

March 01, 2021

by a professional in Charlotte, NC, USA

As an attorney to Search Funds, Searchers, and Independent Sponsors I have noticed a blurring of the lines between Searchers and Independent Sponsors when it comes to sought after economics. My team and I recently published an article which details the economics that an Independent Sponsor can expect. I think that this could be a worthwhile read for any Searchers out there who like the idea of a carry/promote structure with performance hurdles better than common equity subject to vesting. Please see a link to the article below:

https://www.mvalaw.com/news-publications-781.html

John C. Gilson Moore & Van Allen PLLC ###-###-#### office) ###-###-#### mobile) redacted

Reply by an investor
from The University of Chicago in Louisville, KY, USA

Independent Sponsor model looks good on a risk-adjusted basis, but also consider that (in my experience) nearly all investors will also require the Sponsor to co-invest "a meaningful sum" for incentive alignment. So one needs to factor that in. Also, in practice Independent Sponsors are not normally taking over the CEO role but are rather serving as board advisors or operating partners. The business of being an IS relies on generating a handful of deals and a track record as a sponsor, not as an operating executive. Again, all of this is just my firsthand experience but maybe others see it differently.

Reply by an investor
from University of Nebraska in Austin, TX, USA

Nice succinct work up on the typical economics of an independent sponsor deal. One does give up meaningful economics by choosing search model over independent sponsor model.

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