independentsponsor-blog

[independentsponsor-blog]

Fundless sponsors in today's liquid private equity market

With the traditional equity business model, private equity firms seek foreign investors to raise funds for a single fund, which is then spread across multiple investments. This investment is obtained and sought by the managers of the company, and is considered a very logical and valuable investment for the fund. Private equity firms often charge a management fee to pay for relief work and wages.

In this model, LPs are legally responsible for financing the investment decisions of private equity firms. So far, little has been said about these decisions.

This model has been around for years and still works for private equity companies that have the ability to successfully raise capital.

 However, the current global environment presents new challenges for private equity firms and private firms seeking financing.

 More capital is raised; no investment has yet been made.

 As of March 2015, global committed capital of $1.2 trillion was still waiting to be invested in deals, according to Perekin. Combined with the rise of zombie funds (funds that raise capital by holding assets over a period of government assets, there is no clear strategy for raising additional funds) and it is clear that equity firms face time difficult.

 The upshot of all this stagnant capital is that the best deals seem to be auctions. This allows outside investors (including underfunded backers) to search for unknown (but perhaps equally lucrative) offers.

 What is a fundless sponsor?

 A fundless sponsor is a person (or group of people) who does not yet have funds to reach, but who is still looking to achieve their goals. There is a similar research fund, which raises a small amount of money to finance negotiation and efficiency processes.

 The number of underfunded backers has exploded in recent years as former private equity executives leave companies that can no longer raise funds. These executives go on strike on their own and with their personal connections and connections, and use their experience in their small industry to land the small businesses that private companies often seek.

 But why have these models become so popular in recent years at the expense of traditional models?

 Private companies have become very conservative in their fundraising strategies because they fear inadvertent breaches of securities regulations. Their concerns revolve around all the new regulations, in response to the financial crisis, that have emerged. Foreign companies have also had trouble visiting the landscape.

 This is where a bad sponsor becomes very attractive. They can provide Del Flow by working independently with their own investor networks or established private equity firms. An experienced fundless sponsor has strong ties to the industry and can provide unique access to Del Flow that a large private equity firm can generally ignore.

 Fundless sponsorship can be beneficial for a private company, as the sponsor can provide much-needed management and operational skills. LPs can negotiate the terms of rates with the approval of a specific agreement. These transaction fees are generally paid when capital is deployed, which is considered an advantage for LPs, who have the ability to invest in custom transactions, while still being experienced. Cars benefit from the support and resources of investors.

 Fundless sponsors at a glance:

 Acquisition fee.

Can contribute to deferred benefits.

Management or permanent consulting fees.

 Hereditary defects of fundless sponsors.

 Of course, nothing is perfect. For example, unfunded sponsors cannot raise the capital necessary to invest in a transaction. With unfunded sponsors, the chances of a transaction are not as high as with the traditional model.

Bad backers don't have the capital yet, and this can be a barrier to negotiating the terms of the deal or finding the best possible deals. Sellers cannot rush to work with an investor if the required capital is not guaranteed.

 Traditional Private Equity Firms Versus Fundless Sponsors.

 Rather than seeing them as a competitive model, it is better to look at them independently of each other. Traditional private equity firms will have access to the most popular offerings. However, the global climate encourages the emergence of the flexible, unfunded sponsorship model, which will prove its place in the industry.

 Unfunded backers, by their very nature, will close small deals that large private equity firms see as a waste of time. At the same time, unfunded sponsors tend to be increasingly risky, as existing owners and management teams are generally less sophisticated.

 Fundless sponsors are successful when they leverage their personal connections and industry experience to compete and advance in the marketplace. As they advance, they begin to compete directly with private equity firms. This is all the more true as the private equity market declines to find "rough diamond" deals.

 I would expect the unfunded sponsor market to continue to grow as creative funding options are developed at the same time. Such an expansion would put even more pressure on investment bankers and M&A advisers to ensure Dell's timing, speed, and execution remain in check, especially if we're selling M&A, cellular, and laterals. And while the complexity is unlikely to decrease anytime soon, I would expect access to capital to loosen as new technology options make the world of acquisitions and deal financing much easier.

  Private equity fund vs fundless sponsor.

 For small businesses, there are generally two types of buyers: strategic buyers (such as large competitors) and financial buyers (such as Headley Capital). Financial buyers generally fall into one of two categories: those who have committed to working capital and those who have not. Headley Capital has committed equity capital. Our investors (limited partners) have legally committed to financing our acquisition. When we find an attractive acquisition candidate, we can invest in that business without external approval.

 In contrast, a fundless sponsor is a group or individual who wishes to identify potential acquisition candidates and negotiate acquisitions without equity financing to complete the transaction (therefore, they are "unfunded"). Another type of fundless sponsor is the research fund. A research fund is a group or individual that has raised a small amount of money from investors in pursuit of a goal. They will identify and trade a trade with a target, and then investors will have the option of whether to invest in the target company, depending on their choice.

 Fundless sponsors raise the capital needed to fund the acquisition after the LOI is implemented. Since raising funds from investors is a notoriously difficult task, it is important for sellers to understand the possibility of an underfunded backer closing the deal as suggested.

[independentsponsor-blog]

How We Work with Independent Sponsors?

We provide initial information and feedback on acquisition financing options to help independent sponsors:

 ·         Quickly determine viable and expected capital structure options for the transaction.

·         Show a seller or your investment banking advisor that financing alternatives have been explored and are feasible to acquire the sponsor.

·         Provide financing solutions that reduce the time required to raise capital for new sponsors.

·         Have a coordinated process to protect the economy from free sponsors.

 What are the advantages of an independent sponsor?

 More control over investment decisions, more flexibility on specific investments, no real estate fees, and fewer time constraints. Money is no longer stuck in a tight 7-10 year period, but can follow the waves of every business opportunity.

 What is an independent sponsor?

An independent sponsor, also known as an unfunded sponsor, is an individual or equity group who wishes to acquire a business that does not have the required equity financing for the transaction. The independent sponsor identifies a target business and then looks for an investor who can bring capital to the business. The independent sponsor structure avoids having to resort to private equity funds such as pension funds or family funds and instead invests directly in the project. They will manage the business, receive capital and fees for the project, and distribute the proceeds to investors.

Independent sponsors are typically private equity experts or investment bankers who want to have capital and participate in the development and operations of a business. The limited equity capital of an independent sponsor usually comes from hedge funds, private equity firms, family and friends, or family offices. The choice of sources of capital often depends on the nature of the contract.

 What to expect from independent sponsors?

In recent years, private equity has become increasingly creative in finding ways to invest illegally in operating companies. Closed private equity funds and the companies that manage them were once the gatekeepers for this type of investment, but today, especially in the lower middle market, there are various opportunities to buy companies. A generation of investment professionals, trained in transaction mechanisms and fund operations, have chosen to work alone after their private equity training to find, evaluate and process transactions. While some of these professionals have started their own private equity firms, and the number of new firms in the United States over the past five years suggests this is a popular way, others have found a different way to invest. Chose to use the car. Sponsor model

 An independent guarantor, also called a non-fund guarantor, or guarantee fund, differs from traditional private equity primarily by its capital and commitment. Traditional private equity produces a fund, which is usually closed (i.e., has an age limit for investing and returning capital to investors), from where the fund manager (company private equity firm and its Investment professionals invest in investments. Independent sponsors, on the other hand, have no fixed capital. When an independent guarantor has a potential investment opportunity, they look to a limited pool of private investors to raise the capital needed for the equity portion of the transaction. Independent sponsors may have "soft" promises, for example, a family office that informally promises to support their contracts, but has no explicitly committed capital.

 The rise of free sponsorship

In recent years, independent lenders have gained a foothold in the M&A market and have become more prominent in creating and closing intermediate market transactions. Our panel of experts will discuss the evolution and drivers of this trend, including what makes an independent sponsor different from a 'researcher', an independent sponsor who can add value, specific sources and conditions of funding. The face of sponsors in acquiring and closing arbitrage transactions in the market.

For example, large contracts will require prepared capital for the major private equity firms, as they can play a key role in the closing of the contract as well as the operational role in the business acquired by the representative of the company. However, only family offices can be required to engage in small transactions. An independent sponsor may be appointed to manage the contract and operational function.

  Why are independent sponsors attractive to investors?

Independent sponsors have several advantages over traditional private equity funds, that bring their operational and industry-related experience.

 More control over investment decisions. LPs have a great opportunity to comment on all the deals, including tariffs and the economy. The transaction-to-transaction nature allows for greater flexibility in specific investments.

There are no fees on home equity. Their fee structure is more in line with LP interests, especially compared to the annual management fees charged by hired money managers, whether the funds are invested or not.

Lack of restrictions on the time horizon. The money no longer remains locked for a period of seven to 10 years, but can flow with the waves of opportunities for each individual business.

 Who are the free sponsors, and why do they choose the free sponsors model?

Independent sponsors generally come from three main areas.

·         Private equity professionals who want to move from a committed capital model to a transaction-by-transaction model often allow them to become more involved in the transaction and benefit from more financial incentives.

·         Investment bankers who want to access capital and play a more active role in developing the businesses they help finance.

·         Experienced industry experts or entrepreneurs who have already "gone commercial" and can bring valuable experience to the acquired business.

 Independent sponsor Financings

We understand that access to capital is not necessarily a good investor, and similarly there are good investors who do not have a dedicated capital pool. We have found that these “independent backers” often lead transaction opportunities that are off the market, undervalued, and / or in an industry where executives have extensive experience and relationships. Furthermore, we understand the value of such opportunities and can provide independent sponsors with the capital, analysis and credibility to investigate and manage them. For such opportunities, we are prepared to offer market compensation, generally in the form of ongoing administrative costs and based on the creation of the economic value mentioned above.