- What’s New: Terms on sought-after independent sponsor deals get aggressive
Limited partners like family offices are more frequently looking into the independent-sponsor world for deals made by well-known executives from bigger firms casting about on their own.
Partners who work alongside an independent sponsor get a piece of a direct investment and have traditionally enjoyed friendly economics — no fee, no expenses and carried interest if the deal is profitable.
But in today’s high-valued market, the most sought-after deals in the independent-sponsor market are attracting aggressive terms, said panelists at Buyouts Insider’s Family Office Connect conference May 31 in New York.
“Ten to 20 percent carry and in some cases also fees associated, usually not full fees,” said Kelly Perdew, managing general partner of Moonshots Capital.
“I agree, depends on the deal and the demand for the deal. I’ve seen pretty aggressive terms recently, I saw a [special-purpose vehicle] with a 2 and 20 fee schedule,” Eva Baczynska, founder of Aster Group, said. “I’ve seen some deals charge more than 20 percent carry after certain performance hurdles.”
“My experience … to define these deals you think mostly of the high-profile names, access is key, and you just want to be in,” said Peter Sung, partner with Fourward Group.
“Unfortunately these valuations are high; your bargaining power in terms of the rights are fairly limited.”
Independent sponsors have become more popular these days as known executives leave bigger shops and bring together select groups of investors to buy specific companies.
This gives investors the chance to access the talent of an executive without locking up money for a decade or more in a traditional fund.
Capital flows to independent sponsors who are also first-time managers hit an estimated $32 billion last year, up from $29.6 billion in 2016, according to Palico.
Last year’s tally was out of a total of $69 billion raised for first-time managers, Palico said.
This increase is due in part to the challenge of raising a traditional first-time fund, David Lanchner, spokesman with Palico, told Buyouts sister publication Buyouts in a recent interview.
Fundless sponsors can be a way to give a new, promising GP a test-run before actually committing to a blind pool, he said.
And while terms on the most sought-after deals are rich, on lesser pursued transactions investors can find better economics but perhaps with less potential upside.
“We’ve talked about the really hot deals, but there’s also deals … not Slack or SpaceX … some of these deals have potentially the same type of intrinsic value, maybe not as much but very high, and you’d have more bargaining power,” Sung said.
Action Item: Eva Baczynska’s bio on the website: www.theastergroup.com/our-founder/