By Lou Sokolovskiy
As independent sponsor deals become more and more competitive, capital providers are sharpening their focus. This is at least the case for established firms like Merit Capital, a capital provider which has been working with independent sponsors since before the term “independent sponsor” even existed for “fundless” entrepreneurs decades ago. To get a glimpse into the playbook of this veteran firm, I recently sat down with its managing director, Evan Gallinson, who outlined three crucial factors that make a deal irresistible for top capital providers, offering independent sponsors a practical guide to secure funding in 2025’s dynamic private equity (PE) market.
1. “Who Are These Folks?”: The Bedrock of Due Diligence
“Who are these folks?” This is one of the first questions that Merit Capital asks, said Gallinson, adding that to answer that question they embark on a thorough probe into the background, experience, and team dynamics of independent sponsors. Ideal sponsors, he specified, have a combination of both operational know-how and private equity expertise (think ex-PE professionals or operators who understand acquisitions).
What’s more, Gallinson says, is that Merit Capital places more value on teams than on solo sponsors. Their reasoning? Teams diversify risk and can simultaneously pursue multiple opportunities. As a result, expect less pressure to force a deal.
This preference is not unique to Merit Capital. Jacob Orosz, president of Morgan & Westfield, says “most independent sponsors consist of two to three principals (solo sponsors are less common).”
The 2024 McGuireWoods Survey found that 85% of management fees were based on the portfolio company’s trailing 12-month EBITDA, not a fixed amount, with 60% of deals setting the fee at 5% of TTM EBITDA.
“This data reflects a broad theme of independent sponsors truly adding value rather than merely being brokers or finders, “ the report read. “Moreover, it illustrates the value equity investors ascribe to the independent sponsor’s post-closing efforts.”
2. Defining the Dance: “What Role Do They Want to Play?”
This is all about recognizing what your limitations are. Once the “who” is established, the “how” comes into focus – specifically, the sponsor’s intended involvement. It’s about “taking into account their experience and what roles they want to take in the deal,” Gallinson stated. Merit Capital, he noted, is a partner “willing to roll up our sleeves and be very involved in diligence as a partner,” aiming to figure out a role that maximizes the sponsor’s strengths.
Can we have an example? Absolutely. A sponsor, which is strong on operations, might “spend more time on the industry, maybe working with management, maybe working with a customer… understanding that side of it.” Meanwhile, Merit Capital, drawing on its experience with “hard deals,” can “spend more time on the finance and the legal.” The objective, Gallinson articulated, is to “couple it up together” so the collective group can “understand what lane they should be in and what lane we should be in and how we can team up and make one plus one” yield more than two.
This outstanding collaboration, Gallinson said, requires a candid self-assessment from sponsors. They need to “understand their weakness and be able to ask for help and realize what that is,” he said.
Industry trends from 2023 and early 2025 reinforce this collaborative model. For example, in its 2023 report titled, “Independent Sponsors: Market Trends and Industry Insights,” Holland & Knight’s 2023 highlighted defined post-acquisition roles.
3. The Winning Ticket: “Why Are We Winning This Deal?”
But nothing cuts to the core more than this: “Why are we winning this deal?” Don’t give a vague answer. It can’t be merely that “well, I thought it seems like a neat industry” with “a lot of good things going on.” Nor can success be attributed to a “regular way process” where the sponsor simply outbid competitors. And don’t even think about giving answers like those if you don’t have sector-specific experience, Gallinson stressed.
Merit Capital seeks assurance “that we’re not just winning because we’re the highest bidder,” Gallinson said.
Okay! But then what makes for a compelling reason?
The answer to ” why we’re winning,” Gallinson replies, lies in the “value” independent sponsors bring to the table. The value includes things like the inherent “industry experience” they may have. The sponsor must demonstrate “why they are the ones for winning” with a rationale beyond the financial bid – for example, a management team eager for their operational prowess, even if it means taking “a little less money today” for a larger future pie.
Gallinson’s view echo those of Scott Porter, a seasoned investor at Brightwood Capital Advisors, who, in a recent Opus Connect interview, explained the concept of “more skin in the game.” He explained how capital providers like his firm look beyond the numbers in assessing potential partnerships with independent sponsors.
As the independent sponsor market continues its upward trajectory into early 2025, Gallinson’s trifecta of criteria—rigorous sponsor vetting, clear role definition, and a compelling case for success—provides a window into a major capital provider’s playbook, equipping sponsors for pivotal capital provider meetings. While experienced teams capable of tackling larger deals are often favored, the market, as reflected in transaction data from sources like McGuireWoods, still holds space for individual specialists, particularly in smaller deals.
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June 2025
