Gregory Hawver
speaker
24 appearances
1 recordings
1 series
first heard Mar 2025
last heard Mar 2025
Gregory Hawver’s voice in public audio — every appearance, attributed to the second.
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Appearances
yeah scott absolutely and and thanks for having me on i'm a long time listener and big fan of the podcast so uh appreciate you having me my name is greg hover um so i'm a partner in the private equity group at mcguire woods i sit in the chicago office and Within the private equity group at McGuire Woods, we really focus on the middle market to lower middle market.
Two of our strengths within our private equity group are health care and our independent sponsor practice. And I know that on this podcast, you know, health care is discussed quite a bit. And as a listener, I thought it'd be fun to double click on the independent sponsor space.
Cause it's, uh, it's an area where McGuire woods, uh, you know, I'll, I'll humbly say that, that we are sort of the biggest, um, you know, legal practice within the independent sponsor space. We host, uh, the largest conference in the space. So in October of this year in Dallas, we will be hosting the McGuire woods independent sponsor conference, uh, We've had it annually for eight plus years.
Last year, we had 1500 attendees down in Dallas, and those attendees were strictly independent sponsors or family offices or other capital partners investing with independent sponsors. So it's a great conference for networking for panels, et cetera. So we're excited about that.
And we have lots of other podcasts, regional groups, other sort of value add connectivity within our ecosystem here for for independent sponsors. So there's there's the plug. We'll start with the plug. Scott, appreciate it and would love to dove into the topic.
Sure. Yeah. You know, the easiest way to think about it, Scott, is a private equity fund is a group of really smart investors that have they get together and they come up with their thesis. Maybe it's we want to be a buyout fund in the health care space in the middle market to lower middle market. They go out and gather money, a committed fund, and then they go out and find the deals.
The independent sponsor model reverses that a bit. It's smart people that go out and find a deal first. So they're out there finding, you know, owners who are looking to sell, they find the deal, they get the deal under letter of intent, and then they go out and find their investors after. And so many of those investors are family offices.
Private equity funds are increasingly viewing this as an asset class. So that's the basic the basic difference.
Yes. So an independent sponsor is typically someone with 10 or more years of experience, either with a private equity fund, investing and thinking about it through that lens. Sometimes an independent sponsor will be a very experienced CEO or operator with 10, 20 years of experience in a specific niche area, but they're typically very experienced.
And it sort of goes to the value add of the independent sponsor. Family offices many times view these firms as extensions of their family office and just extremely qualified private equity investors. And let me draw a quick distinction here, just so we have all the different nuances of
of the private equity ecosystem, there's another type of investor called a search funder, or it's also called entrepreneurship through acquisition. That's another niche and a popular model, but that is different from an independent sponsor because those searchers, as they're called, they're typically right out of business school, super bright. They're usually from, you know,
MIT or Kellogg or one of the top schools, and they are getting what they do is they graduate, they find investors to invest with them as you know, a super impressive MBA student, and then they go out and search for a deal for 18 months. So we do draw a distinction between sort of that class of investors, which can be successful.
And again, the independent sponsors, usually super experienced and someone that you can trust to run an investment for you.
Yeah, we're seeing that evolve. The the typical independent sponsor model, it kind of breaks down. Maybe we'll just go to economics real quick. So a typical independent sponsor economics, what they get in a transaction is essentially three pillars. We call them sometimes the first pillar.
is a management fee, which is usually like a percentage of earnings or EBITDA of the company, sometimes usually 5%. So that's sort of for their ongoing efforts for running the company. So they're getting a management fee. They're also getting some form of closing economics. You got to be careful from a regulatory perspective, but that's maybe 1% to 2% of the purchase price.
And then there's a carried interest or promote, which is the most important part of the economics. So after you reach several hurdles, the independent sponsor is sharing in the upside of the business. So to answer your question, what are independent sponsors putting into the deals? They are most always putting in those closing fees. So they're taking that 1% to 2% of economics.
And instead of putting that in the form of cash in their pocket, they're investing that into the business in some form or another. And that's sort of the typical model. What we're seeing evolve is some sort of smaller family offices saying, I want to... If the acquisition requires $10 million of equity capital, maybe we want to put in $3 million.
And maybe with respect to the other $7 million, we want to use the independent sponsor model and earn economics from our LPs, but we're going to put in real economics. So it varies, but that's what I'm seeing in the market, Scott.
Yeah. Yeah. Good question. And also talk about kind of the deals that are successful. A successful independent sponsor is someone who, as I said, is experienced, not just generally, but typically within the sector that they're hunting for deals in. So I'll use the widget sector, but someone who has bought and sold companies in that space for years and years.
And they're typically, Scott, finding deals that are not widely shopped. So independent sponsors are not very successful candidly in big auction processes that are run by blue chip investment banks that are just finding the highest bidder for a company. Independent sponsors are really out there forming relationships with founders and that way they're able to find these proprietary deals.
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