Mergers & Acquisitions

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The Basics of Selling Your Business to an Independent Sponsor

The Basics of Selling Your Business to an Independent Sponsor

John Koeppel

M&A Law | Private Equity

When selling your company, you are likely to be approached by an independent sponsor who may be interested in acquiring your company. What is an independent sponsor, and how are they different from private equity firms? Is their criteria different from other investors? What should you know about independent investors before you consider selling your business to one? Join us as we fully explore the world of independent sponsors with John Koeppel, an M&A attorney specializing in private equity.

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Guest Profile

John Koeppel is an M&A attorney and Partner and the Team Leader of Lippes Mathias LLP’s Private Equity Practice. John has successfully structured, negotiated, and closed over 250 transactions in the past two decades, which typically involve mergers and acquisitions, fund formations and investments, and various private equity transactions (including co-investments, venture financings, and cross-border deals). Mr. Koeppel acts as counsel to a number of leading funds, independent sponsors, middle-market companies, institutional investors, and high net worth investors focused on buy-out, growth, venture, real estate, intellectual property, fund-of-funds, co-investments, secondaries, and other strategies. He also often acts as US counsel to non-US clients on their US private equity and investment fund transactions. He also serves as a director for several private equity-backed companies. On the M&A and private equity transactions side, Mr. Koeppel has advised on deals from $5 million to $250 million+ in a wide range of industries, including manufacturing, technology, consumer goods, food, distribution, business services, cleantech, medical, and health care. He is also a frequent speaker at a number of leading private equity and M&A events. Prior to joining Lippes Mathias, he was a partner in the private equity and investment funds group of an AmLaw 100 firm.

Topics Covered

  • What is an independent sponsor? [1:35]
  • Do independent sponsors have an investment time frame? [6:20]
  • Platform vs. add-on acquisitions [7:30]
  • How do they structure the transaction from a legal perspective? [8:00]
  • What are the differences in transaction documents vs. documents for private equity transactions? [9:00]
  • Should the seller be concerned that the capital isn’t committed? [9:50]
  • Do the investors have a say in the investment? [12:05]
  • Typical transaction sizes for independent sponsors [14:50]
  • Why would an investor invest in an independent sponsor as opposed to a private equity firm? [16:00]
  • What type of people are independent sponsors? What is their background? [17:25]
  • What’s a typical co-investment size? [20:40]
  • How do they cover the fees for deal sourcing? [21:50]
  • Are there major differences in transaction structure vs. selling to a private equity firm? [23:50]
  • Do independent sponsors usually require the owner to stay after the closing? [24:45]
  • Do they usually complete multiple acquisitions? [28:25]
  • How do they cover the fees to conduct due diligence? [29:40]
  • How do their criteria differ from PE firms? [31:30]
  • Do the investors have a say in the exit? [32:25]
  • Who are the investors? [33:25]
  • Do the investors retain their own attorneys? [35:10]
  • What documents need to be prepared between the investor and the sponsor? [36:30]
  • Liquidation preferences [37:45]
  • Angel investment vs. independent sponsor transaction structure [38:20]
  • How difficult is it to prepare the transaction documents? [41:50]
  • What is a Series LLC? [42:55]
  • What’s the biggest downside to selling to an independent sponsor? [44:45]
  • How do the sponsors find investors? [45:30]
  • What’s the management team’s reaction when they find out they are being acquired by an independent sponsor? [49:00]
  • How do you identify an independent sponsor vs. a PE firm? [49:50]
  • What percentage of deals do independent sponsors close? [51:15]
  • Are there any tax advantages? [53:20]
  • Are earnouts more commonly used? [55:50]
  • What tools are used to mitigate risk? [56:55]
  • Are they as selective as PE firms? [58:00]

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