Shoot the Moon with Revenue Rocket

Selling Your Business to an Independent Sponsor

Episode Summary

Mike and Ryan discuss the role of independent sponsors in the M&A process for IT services firms, highlighting the differences between independent sponsors and private equity funds or strategic buyers, the importance of demonstrating funding capabilities, and the negotiability of exclusivity provisions in letters of intent. They emphasized the potential benefits and risks of working with independent sponsors, and advised companies to carefully evaluate these buyers while leveraging the expertise of advisors like Revenue Rocket to navigate the process.

Episode Notes

Key Points Discussed

• Independent sponsors are individuals looking to invest in or acquire their first company, often using outside financing.
• Independent sponsors differ from private equity funds in that they need to secure funding after finding a deal, whereas PE funds have pre-committed capital.
• Sellers need to carefully evaluate an independent sponsor's ability to raise the necessary funding to complete a deal.
• Independent sponsors may offer higher enterprise values than other buyers, but the deal closing is less certain.
• Independent sponsors should have a strong strategic, cultural, and financial story to present to sellers.
• Independent sponsors should line up multiple potential funding sources to mitigate the risk of a single source falling through.
• Sellers can sometimes negotiate shorter exclusivity periods in LOIs with independent sponsors.
• Advisors like Revenue Rocket can help sellers evaluate and qualify independent sponsors to improve the chances of a successful transaction.
• Independent sponsors can be a good option for sellers, but the process requires careful consideration of the risks and benefits.

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