Introduction

Family offices, which manage the wealth and investments of affluent families, are increasingly turning to independent sponsor transactions as a viable investment strategy. Independent sponsors, also known as fundless sponsors, raise capital on a deal-by-deal basis rather than pooling funds in a traditional private equity fund. This approach offers several advantages that align well with the unique goals and preferences of family offices.

The Benefits of Independent Sponsor Transactions to Family Office Investors

  1. Control and Discretion: Family offices often seek greater control over their investments. Independent sponsor transactions allow family offices to opt into specific deals, providing more discretion and customization compared to traditional private equity funds. This tailored approach ensures that investments align closely with the family’s values and financial goals. In addition, family offices are welcome to the board of directors of independent sponsor transactions where they can add value to the company by infusing their knowledge and experience alongside capital.
  2. Access to Middle and Lower Middle Market Deals: Independent sponsors often focus on middle and lower middle market transactions, which are less accessible to larger institutional investors. This provides family offices with unique investment opportunities that may not be available through traditional private equity funds, often at more attractive valuations and with higher growth, return potential.
  3. Potential for Enhanced Returns: By targeting small market resilient companies, independent sponsors can potentially achieve higher returns compared to investments in the middle and large market. This focus on smaller, well-established companies that are positioned to scale both organically and inorganically can yield consistent cash flows and appreciation in value.
  4. Lower Fees: Traditional private equity funds typically charge management fees on committed capital, even if the funds are not yet invested. Independent sponsors, on the other hand, normally charge investors fees only on the return of capital via a tiered carry performance fee structure that rewards for outperformance, resulting in much lower overall fees. This fee structure is much more cost-effective and ensures that family offices are only paying for active investments that are performing.
  5. Alignment of Interests: Independent sponsors typically invest their own capital alongside that of their investors, which fosters a strong alignment of interest. In addition, the transaction outcome is normally very important and impactful the independent sponsor. This co-investment approach can provide investors with confidence that the sponsors are equally invested in the success of the venture.
  6. Transparency: Independent sponsors are known for their hands-on approach and transparency in their operations. Independent sponsor transactions offer greater transparency, as family offices can directly see and evaluate each individual investment opportunity from a much more informed perspective. This transparency helps family offices make more informed investment decisions, reducing the risk of unforeseen issues and aligning investments with the family’s strategic vision.
  7. Flexibility: Independent sponsors can quickly adapt to changing market conditions and opportunities, allowing family offices to participate in a wider range of deals. This flexibility is particularly valuable in dynamic and uncertain market environments, enabling family offices to capitalize on emerging trends and opportunities.

The Best Strategies for Family Offices to Access Independent Sponsor Transactions

  1. Align with an Experienced Advisor, Asset Manager and Strategic Equity Partner: With over 1,000 independent sponsor platforms in North America and more forming every year, it is vital to have a guide that has time in the space to provide insight and direction. An experienced advisor can help with access, which is difficult to come by due to the fragmented nature of the marketspace. In addition, given the fast-moving nature of a direct equity investment over a period of sixty (60) to ninety (90) days, an advisor will be instrumental in assisting with the underwriting of the investment manager and the transaction opportunity. Finally, an advisor will be well positioned to inform a family office on the appropriate terms, governance, and controls to affirm.
  2. Partnering with Experienced Independent Sponsors: Family offices should seek independent sponsors with a proven track record and expertise in the target industry. This ensures that the family office is working with knowledgeable and capable partners who can navigate complex transactions and add value to the investments. A knowledgeable advisor will deliver best in class independent sponsor introduction.
  3. Due Diligence: Conducting thorough due diligence on potential independent sponsors and their investment opportunities is crucial. Family offices should evaluate the sponsor’s track record, investment strategy, and financial health to ensure a sound investment. This process includes assessing the sponsor’s operational capabilities, market knowledge, and alignment with the family’s investment objectives. And then there is underwriting the industry, the company, historical and projected performance, which an advisor will assist in fully completing.
  4. Building Relationships: Establishing strong relationships with independent sponsors can lead to better deal flow and more favorable investment terms. Family offices should invest time in networking and building connections within the independent sponsor community, as well as the transaction advisors in the space fostering long-term partnerships that can yield ongoing investment opportunities.
  5. Diversifying Investment Portfolios: By including independent sponsor transactions in their portfolios, family offices can diversify their investment strategies and reduce risk. This diversification can lead to more stable and consistent returns over time, balancing the portfolio across different sectors, industries and geographies. This broader investment base can help mitigate volatility, reduce concentration risk and enhance overall portfolio stability by investing thoughtfully where alpha is generated.

Conclusion

Investing in independent sponsor transactions offers family offices a range of benefits, including greater control, lower fees, higher returns, enhanced transparency, expansive flexibility, and access to unique market opportunities. By partnering with experienced independent sponsors, diversifying their portfolios, building strong relationships, and conducting thorough due diligence, family offices can effectively leverage this investment strategy to achieve their financial goals and preserve wealth for future generations.

About Aviara Partners

Aviara Partners is a new breed of capital markets advisory firm, founded by a team of seasoned professionals with decades of experience in advising on debt and equity solutions and investing in independent sponsor transactions. Driven by an entrepreneurial mindset, Aviara embraces technological innovation and tailored, curated outreach, establishing the firm as a trusted partner within a diverse ecosystem of blue-chip independent and funded sponsors. As a holistic solutions provider, Aviara collaborates on a deal-by-deal basis to raise capital from a curated global network of institutional investors, ranging from lesser-known family offices to large, established asset managers, pension funds, and sovereign wealth funds. Their entrepreneurial approach enables them to navigate complex financial landscapes and provide unique, customized solutions to meet the needs of their clients.