evan vitale on fundless sponsors
DESCRIPTION
Evan Vitale gives an outline of a new trend in the world of private equity, "fundless sponsors" who broker deals between businesses and big private equity firms. For more, check out his blog: http://evanvitale.net/TRANSCRIPT
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FUNDLESS SPONSORS
By: Evan Vitale
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Private equity is a difficult business.
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In order to get started, one has to raise capital but, in order to raise capital, one must showcase a track record of
success.
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In the past this was done very slowly, with the private equity executive
hopeful brokering small deals in an effort to build credibility in the industry before moving up to larger and larger
deals.
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That is a tough, long road for anyone to walk.
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It is made even more difficult in today’s market where the
competition is as fierce as it has ever been and, therefore, prices
are through the roof.
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The new entrant to the world of private equity is beaten out by bigger firms before he can even get out of the starting
gate.
So what is he or she to do?
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An interesting direction some entrants into the market are
taking when they find a deal but are unable to raise capital
themselves is to broker the deal out to a larger firms, acting as a “fundless sponsor” for the deal.
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These deals have become more and more prevalent in the world of
private equity over the past five years.
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Will this mode of interaction between
businesses and private equity firms persist into the
future or is it just a fad?