The Growth Capital Guide

6 Ways to Improve Your Ability to Negotiate

Better Independent Sponsor Economics

Independent Sponsor Economics

Independent Sponsor Economics often vary widely based on the background of the independent sponsor, the deal dynamics and the capital partners involved.

Typical Components of an Independent Sponsor’s Economics

Deal or Transaction Fee Ongoing Management Fee

Promote, Carry or Carried Interest

1 2 3

Deal or transaction fees are fees paid at closing to the independent sponsor for putting a deal together. In many cases, it will be expected that a portion of this fee will be rolled back into the transaction alongside the other equity investors. Creative structuring may take place to minimize the tax consequences to the independent sponsor.

Deal or Transaction Fee

Typical Components of an Independent Sponsor’s Economics

A fundless sponsor’s management fee is a fee paid on an ongoing basis for focusing on building and growing the portfolio company. Generally, fundless sponsor management fees range from 3.5% to 7.5% of EBITDA, although depending on the size of the company, a floor or ceiling may be established.

Ongoing Management Fee

Typical Components of an Independent Sponsor’s Economics

An independent sponsor’s carried interest provides alignment of incentives, allowing an independent sponsor to participate in the value creation of the business and capital appreciation of the other capital providers’ investments. Carried interest structures vary widely by situation and capital provider. The carried interest component usually represents the largest portion of an independent sponsor’s compensation and is often a main point of negotiation between the sponsor and capital partners.

Promote, Carry or Carried Interest

Typical Components of an Independent Sponsor’s Economics

Improve Your Independent Sponsor Economics by Following

These 6 Guidelines

1. Focus on What You KnowFocus on acquiring businesses that fall in industries or situations where you have extensive experience, relationships or a track record. Unless there’s a lengthy track record across multiple industries or types of situations, it can be difficult for a private equity firm or family office to get behind an independent sponsor with no experience in the industry or the business that’s being acquired.

Negotiating better economics will be a lot easier if you can demonstrate why a capital partner should support you over someone else, or a management team directly.

2. Bring an Industry Specialist

Bring a veteran operating partner or executive with deep industry experience to the table. If you don’t have a deep background in the industry of the target company, adding an industry executive who will either augment the company’s leadership team or serve in a strategic operating partner capacity is a great way to add value to debt and equity capital providers who back fundless sponsors.

3. Find the Hidden Gem

Find a proprietary opportunity at an attractive valuation. Bringing an opportunity to a capital provider that’s been widely marketed by a capable investment bank is usually a non-starter from the capital partners perspective. In many cases, the private equity firm or family office will have seen the opportunity directly.

Unless there is some compelling reason why the capital partner should back the independent sponsor directly, save yourself the time and look elsewhere. Focus on direct opportunities or situations that haven’t been widely auctioned.

4. Develop a Growth PlanDeveloping a thoughtful growth and value creation strategy is a must. A fundless sponsor who sends a lot of deals to capital partners without thinking them through wastes capital partners’ time and damages the credibility of the independent sponsor.

If you intend to discuss an opportunity with a debt or equity financing source, you should be able to articulate why the acquisition is compelling and what specific strategies should be implemented to grow the business and create value.

5. Tee Up Add-OnsIf growth by acquisition is part of the value creation strategy, identify and possibly tee up other complimentary add-on acquisitions. Making add-on acquisitions can be a great way to grow a company, achieve scale and create value. Sourcing a potential follow-on acquisition opportunity or two can help demonstrate to capital partners how you intend to increase the value of their initial investment, and potentially, give them an opportunity to put more dollars to work.

Having other opportunities lined up may put you in a better position to negotiate your fundless sponsor compensation package with a capital partner.

6. Run a ProcessRun a coordinated and systematic process to raise the capital. We see independent sponsors or executives who frequently partner with the first capital provider that agrees to do the deal. While sometimes this makes sense because of timing constraints, it usually leads to the independent sponsor getting squeezed on economics, such as carried interest, a management fee or a deal fee.

Running a more formal process allows the independent sponsor to both: a) find the capital partner that is the best fit with the sponsor and the business and; b) determine the “market” economics for the fundless sponsor for the particular situation.

6. Run a Process (continued)

Run a coordinated and systematic process to raise the capital. If you don’t have time to run a coordinated capital raising process or don’t have the breadth of established relationships with debt and equity capital providers to know whether or not you’re being offered market-based independent sponsor economics, contact Access Capital Partners. We focus exclusively on raising capital for independent sponsors and executives making acquisitions or recapitalizing existing portfolio companies.

SAVE TIME, FOCUS ON WHAT MATTERS

Focus on Deal Sourcing, New Deal Evaluation, Target Company

Diligence and Value Creation of Existing Portfolio Companies

ACCELERATE THE CAPITAL RAISING PROCESS

CREDIBILITY WHEN NEGOTIATING WITH SELLERS

IMPROVED FUNDLESS SPONSOR ECONOMICS

ALIGNED INTERESTS

Our Acquisition Financing Process Aims to Accelerate the Time to Structure,

Source Negotiate and Close the Financing in a way the Aligns with the

Fundless Sponsor Model

Once the Proposed Financing Structures Have Been Vetted by Some of Our Capital Partners, We’ll Issue a Support Letter or Discuss Financing

with the Seller or Seller’s Advisor

LEVERAGE OUR NETWORK & RELATIONSHIPS

Our Independent Sponsor Financing Process Aims to Preserve or Exceed Market-Based Sponsor Economics

Success-Based Fee Structures and Co-Investment Opportunities Maintain Alignment with Our

Independent Sponsor Partners

We’ve Spent Years Identifying and Developing Relationships with Debt

and Equity Capital Partners- Use Them to complete more acquisitions

on Better Terms.

Partnering with Access Capital Partners

$8.0B+ 100+ 35+ 1000+ In total transaction experience

Completed transactions Years of middle market experience

Relationships with debt and equity capital providers across the globe

Access Capital Partners is an Investment Bank Focused on Providing Independent Financial Sponsors and Executives with Unmatched Capital Raising Services.

We’ve Leveraged Years of Experience in Raising Capital Across a Wide Variety of Situations to Develop a Focused Effort Tailored to the Unique Needs of Independent or Fundless Sponsors.

ABOUT ACCESS CAPITAL PARTNERS

Access Capital Partners

7733 Forsyth Blvd., Suite 1168 St. Louis, MO 63105

314.783.9550 www.accesscappartners.com

www.fundlesssponsorcapital.com

Securities offered through StillPoint Capital LLC, Member FINRA and SIPC Tampa, FL 33626. StillPoint Capital is not affiliated with Access Capital Partners.

Greg Porto 312.339.2857

gporto@accesscappartners.com

Greg Tobben 314.458.8186

gtobben@accesscappartners.com