Serving Independent Sponsors For Over 26 Years

Each Independent Sponsor has a level of intended management involvement in their target company post-closing, which can range from board-level oversight and strategic planning, to day-to-day operational management. As a result, it is imperative that the capital provider and transaction structure are compatible with the planned post-closing role of the Independent Sponsor. For example, if the financial partner is a private equity group that is accustomed to taking full management control of its portfolio companies, this may conflict with an Independent Sponsor’s desire to have a meaningful management role. Conversely, if the Independent Sponsor desires only a board role, the capital provider must be comfortable with that more limited involvement level. Peninsula Capital Partners has worked with Independent Sponsors in a wide variety of operating roles, based on the objectives of the Independent Sponsor and the management needs of the target company. We are open to any level of operating involvement by the Independent Sponsor and will help to define their role in the company. This should occur early in the evaluation process, versus deferring such key discussions until late in the due diligence process, or worse, until after the transaction has closed.

An Independent Sponsor must be aware of the equity ownership requirements of their capital provider. Many financial investors require majority ownership while some cannot be majority equity holders, still others need super-voting rights and/or liquidation preferences versus other equity holders. These may, or may not, be compatible with an Independent Sponsor’s goals for the transaction. Moreover, transactions are fluid and deal structures often change from the LOI stage to the final closing. If an unexpected, late-stage, structural change must be made to a transaction – such as the capital provider needing to go from a minority position to controlling position – how flexible can the capital provider be? Most capital providers claim to be flexible, but simply cannot participate in certain transaction structures. Many private equity firms can only do control investments while others can only make minority investments. If an unexpected structural change creates an unacceptable situation for your chosen capital provider, your transaction may be put at risk as a new financial partner must be sourced. Peninsula Capital Partners is a truly flexible investor that works to identify the best custom capital solution for your transaction. We are equally comfortable as a control or non-control investor and have closed many transactions in each role. In addition, we have even switched roles from control to non-control investor, or vice versa, after partnering with an Independent Sponsor on a deal as circumstances change, something many private equity firms simply cannot do. So, while the term flexible is thrown around a lot by capital providers, how truly flexible a capital provider can be when it really matters is a question all Independent Sponsors must ask before selecting their financing partner.

Many different terms are heard in the transaction market referring to junior capital, such as “mezzanine debt,” “subordinated debt,” “convertible debt,” “unitranche debt,” “flexible equity,” “second-lien debt,” etc. Each term has own unique meaning, but in general, they all refer to certain approaches to structuring junior capital components. Investors who specialize in one of these capital components are product focused in their structural preferences, and are thus limited in what they are willing, or able, to do to close a transaction. For example, a “flexible equity” investor who can only take minority equity positions is hardly flexible. Peninsula Capital Partners is a truly flexible investor as we are able to invest both debt and equity in a transaction, either as a control or non-control investor, in order to provide the best possible customized structure for a transaction. We call our approach “structured equity;” simply meaning we will structure a junior capital solution that meets the unique needs, goals and objectives of the Independent Sponsor and target company.

There is an old saying, “The Devil’s in the details.” This very much applies to investment documentation. Even if the economics of a piece of capital are acceptable, the non-economic terms in the investment documentation can render it unacceptable. The philosophy of an investor is very evident in the documentation approach they bring to a transaction. As investment documentation is generally not started until near the end of a transaction, when the Independent Sponsor is likely not in a position to replace his chosen capital provider, there is an opportunity for a capital provider to seek terms and conditions that were not articulated up front. Therefore, an Independent Sponsor needs to know before selecting a financial partner whether or not the capital provider will be reasonable and fair during the investment documentation process. Peninsula Capital Partners seeks to convey at the earliest stages of the transaction process the key terms and conditions it requires to close an investment to avoid any misunderstandings.