Food for Thought: Mark Tedford on the Challenges of Being an Independent Sponsor

An Interview with Mark Tedford, Founder and Managing Director of Valley Ridge Investment Partners

Mark Tedford, founder and managing director of Connecticut-based Valley Ridge Investment Partners, has a unique perspective on the challenges of being an independent sponsor. A lower middle market investor with decades of experience in private equity investing, Tedford shared his thoughts in a recent interview with me on what it takes for fundless sponsors to succeed in the current market.

One of the most challenging hurdles for his company has been in the final stages of signing a letter of intent (LOI).

“I would say that the lesson we’ve learned and the struggle we face is when we get a deal under LOI we’re busy in the throes of closing a deal we tend to ignore our business development pipeline at our own peril,” he said, explaining how Valley Ridge has seen deals fall through because they didn’t have an investment in the pipeline.

He added that negotiations with all the parties involved – the company’s management, accounting teams, lawyers, bankers, and advisors – is often so time-consuming that “we let our business development pipeline go dry and at the end of that two- or three-month period we have to restart it again.”

But Tedford says his company has found ways to keep things moving forward despite the obstacles.

“We’re trying to get better at maintaining an ongoing dialogue with investment bankers and deal providers over the course of the year regardless of what our vehicle looks like at the current time,” he said, crediting Opus Connect for providing firms like his with an online platform to create a marketplace for prospects.

“I think it’s a matter of finding being visible to enough firms often enough to stay kind of on their radar screen,” he added.

“We have tended to do better with smaller boutique investment banks in sort of second and third-tier cities, particularly Midwest and the South rather than the little, larger banks that are doing a lot of deals.”

To Say or Not to Say

Tedford says sharing too many ideas with sellers can be a hindrance in terms of deal flow.

“It’s a fine line to walk,” he said, “In cases in the past where we’ve come up with creative ideas and we’ve said to the prospective sellers how about this how about that. They said yea, that’s a good idea, and the business suddenly came off the market, and then they decide to try to do those ideas themselves.”

But how should private equity firms handle the delicate balancing act of sharing ideas while still being respectful?

“We try to be open and honest with folks and say here are the opportunities that we see and the opportunities you’ve laid out, these look stronger than those… We sort of try to, in a delicate and polite way, stress [that we] test some of our ideas and some of their ideas to see which ones are the best opportunities and, in many cases, we found that these companies have so much opportunity before them, it’s not a matter of finding the growth it’s a matter of prioritizing what opportunities to tackle first,” he said.

Tedford remains optimistic about the opportunities available to independent sponsors in today’s market.

“I think growth is going to be pretty substantial for the next two to four quarters at least into 2022, and if we can get a handle on inflation and inflation doesn’t cause interest rates to rise,” he said. “We are trying to manage our business development efforts in the same way. Trying to get ahead of the curve.”

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By Lou Sokolovskiy, Founder & CEO at Opus Connect
July 2021