We need to expand the definition of Independent Sponsor
At Trident, we’re focused on the world of Independent Sponsors, or those historically known as “Fundless Sponsors.” We meet with them daily through personal introductions, conferences, and digitally through our platform at Trident.co.
Given our experience, we propose that the traditional understanding of who and what defines an Independent Sponsor needs to be expanded. In fact, it overlooks what we believe to be the vast majority of Independent Sponsors in the US who are buying, growing, and subsequently selling businesses every day.
An Independent Sponsor is any individual or group that has an established track record of operating, growing, and selling businesses, but does not control a pool of committed capital
Let’s break this down a bit.
First, we want to move away from the concept that an Independent Sponsor can only be a “Finance Professional”, or someone looking to raise a private equity fund. According to the Corporate Finance Institute, the range of Independent Sponsors include “experienced acquirers such as former private equity portfolio company CEOs.” At Trident, some of our best performing deals are actually with former operators, not necessarily former investors or career finance professionals.
Secondly, organic growth and operational expertise matter. Though a pure play finance professional is well-equipped to run a deal process and purchase a business, the differentiator in these investments often is a Sponsors’ advantage in executing a business plan. This advantage is cultivated from decades of experience which creates both meaningful growth opportunities and downside protection for target acquisitions. At Trident, we back proven operators and finance professionals with niche unmatched experience and one-of-a-kind sector-specific expertise. This enables our underlying portfolio companies to outperform through-cycle.
Finally, this definition widens the funnel of quality, actionable opportunities. Experienced operators that understand how to sponsor transactions who would historically be excluded from the world of ‘Independent Sponsors’ now have a home. We believe that the majority of the approximately 30,000 small businesses that are trading hands each year are doing so among Independent Sponsors. We are laser focused on seeing as much of that deal flow as possible. Where historically Independent Sponsors have had difficulty financing transactions due to a lack of institutional capital, now there is Trident.
We want to encourage owners, operators, private equity professionals to see themselves as potential entrepreneurs. We want them to find opportunities to acquire and grow businesses whether through acquisitions or organic growth initiatives. We see more and more Independent Sponsors sending us transactions and we’re excited to continue to spread the word that they should see a capital partnership with Trident as a unique opportunity.
We have straightforward parameters and investment criteria (we are not “opportunistic”). We react quickly to compelling investment opportunities. We don’t waste Sponsors’ time and if something doesn’t fit our criteria we give quick ‘no’s’ with detailed feedback. We don’t usurp control of businesses from Independent Sponsors — we back them with vanilla equity capital and strategic support resources to encourage the best possible outcome.
Perusing our portfolio companies one would find that roughly 60% of the businesses we’ve purchased were in deals led by Independent Sponsors with predominantly operational experience. In about 40% of our investments the Independent Sponsor also functions as Chairman and CEO. If you are curious about how our framework looks, give us a ring and we’ll be happy to explain.