Citrin Cooperman Annual Report on Independent Sponsors Reveals a Growing Industry Becoming Ever More Sophisticated


When we launched the first Citrin Cooperman Independent Sponsor Report last year, our goal was to shed a light on the largely unchartered landscape of the independent sponsor world, the “Wild West” of private equity, as one of last year’s esteemed contributors Bruce Lipian aptly described it. Last year’s Report was the first of its kind, reaching a large number of independent sponsors (245 to be exact) on a
wide variety of topics – firm evolution, deal flow, capital raising, economics and liquidity events, among others.

This year, we wanted to capitalize on the success of last year’s Report and to dig deeper. We continue to explore the themes covered last year, but we have also expanded our analysis of economic terms, in response to feedback from many of you. In a sector where one broken deal can be financially
devastating and one successful liquidity event can set you up for life, the stakes have never been higher. And so this year, based upon responses from over 200 independent sponsors, we have identified typical” terms and calculations while also finding considerable variation in economic structures. By sharing these data points, both the typical and atypical, it is our hope that independent sponsors and their capital providers will have a greater understanding as to what the market will bear.

When we started our independent sponsor survey effort last year, there was no playbook for the sector. This year, we hope to create the beginnings of one so that all independent sponsors – novice and experienced alike – may benefit from the findings shared. We are indebted to our survey respondents and our esteemed group of external contributors, both independent sponsors and capital providers, for sharing their insights with us and for making this year’s Report possible. We hope that you enjoy the Report, and we look forward to discussing our findings with you.

Sylvie Gadant, Partner, Citrin Cooperman



This is Citrin Cooperman’s second Independent Sponsor Report. This year’s Report incorporates results from an online survey and interviews with leading independent sponsors and capital providers. Some statistics used throughout the Report may reflect rounding.


This year, 208 professionals in the independent sponsor space shared their views on industry outlook and operational issues such as deal flow and mechanics, capital sources, deal economics, relationships with portfolio companies and liquidity events. The survey was conducted in April and May 2018, and interviews with leading independent sponsors and capital providers were conducted in July 2018. One hundred and seventy five respondents identified themselves as independent sponsors. Like last year, the majority of these independent sponsors are at firms that have been in existence more than five
years. Most firms (60 percent) have two or three principals, and 27 percent have only one principal. The majority have one non-professional staff member. All major regions of the United States are represented by our respondent population.

Not surprisingly, many of the younger firms (80 percent of them) represented firms (80 percent of them) represented in our study (defined as those in existence less than five years) have not had a liquidity event. Among older firms (those in existence more than five years), 25 percent of them have had four or more liquidity events. Of those firms that have had liquidity events, 12 percent have returned an average realized equity multiple of greater than 5x.

The independent sponsor space has experienced a significant evolution over the past two decades. In
the early days of the model (back when independent sponsors were still known as “fundless”
sponsors), former private equity and investment banking professionals dominated the space. But now,
as our research shows, professionals from other backgrounds – company management/ operations
and consulting, among others – are seeing it as a viable career path. They, like many, are embracing
the risk inherent in the model, realizing it allows them greater control over their investments and holds
the lure of outsize returns.

“The model makes good economic sense both from a GP and LP perspective: you have the benefits of
not dealing with the dollar cost averaging of multiple investments and fund management issues
associated with committed capital,” explained David Acharya, Partner, AGI Partners LLC. “In addition, the model has strong limited partner alignment on issues such as fees, carried interest and discretion to review each investment opportunity.” Like the independent sponsor sector itself, the firms represented by our respondents have also meaningfully evolved over the years.
Once our respondents gained a track record, they found that capital flows more freely. Several
noted that they are now seen as a legitimate alternative to funded groups, whereas early on, that was not the case. Many respondents described how their network of capital sources expanded and changed over the years. For some firms, capital partners have become more institutional. Other firms partner with family offices. Repeat funding relationships have become an option, especially for those with decent track records.

Deal sourcing strategies have also changed for our respondents through the years. When many independent sponsors were just starting out, broker referrals and auctions were the dominant sources of deal flow. Once independent sponsors developed a track record with a few deals under their belt, inbounds and proprietary deal sourcing became more popular.

In addition, many of our respondents have become more selective in which deals they pursue. Some avoid auctions entirely. Others have changed their focus, for example, moving up-market to focus on control buyouts or companies with higher EBITDA. However, all independent sponsors face a uniquely tough situation – the need to balance myriad demands – sourcing, portfolio management, capital partner relationships and general operations to name a few – with limited resources. In response, many of our respondents have added personnel, both principals and junior staff, which enable them to  respond quicker to inbound opportunities, source more deals, allocate resources more efficiently and manage investments more effectively. Streamlining processes is also essential to scaling an independent sponsor firm. Recognizing this, our respondents have employed various strategies: implementing CRM systems to manage investor and contact relationships, creating investor portals, establishing protocols
for investigating deal leads, managing due diligence and streamlining portfolio management. “Replication of returns comes from replication of processes,” advised John Fruehwirth.



As the independent sponsor model has grown in popularity over the past two decades, it now has more credibility and traction with capital sources. “In the 90’s, independent sponsor deals were typically referred to us,” said Evan Gallinson, Managing Director, Merit Capital. “But we soon realized we were getting good deals from this source, then called fundless sponsors, and they were adding great value
post-close.” Merit Capital launched a specific outreach effort and created its first fundless sponsor conference in 2005. “Now, we are the ones actively seeking independent sponsors and proactively trying to build relationships,” he added. “These relationships have also developed into more of a two-way street, and we sometimes are referring out deals to independent sponsors when the deal isn’t right for us.” Gretchen Perkins of Huron Capital agreed. “We are in active outreach mode to independent sponsors. We want to maintain visibility with this crowd and be there for them when they find an opportunity and need capital to complete an acquisition.” Capital sources available to independent sponsors have also expanded significantly. “Even in the past five years we have seen a radical change,” said John Fruehwirth, Managing Partner, Rotunda Capital. “Endowments, families, and institutions recognize there is good talent in the independent sponsor field, and they are trying to harness it
through one-off or repeat relationships………FULL REPORT HERE