Articles

Client Alert: The Rise of Independent Sponsors and Searchers in Private Equity

Date: February 17, 2026

By: Clare M. Lewis, Charles R. McCarthy

In a recent article in Deal Points, the newsletter of the ABA Business Law Section’s Mergers and Acquisitions subcommittee, Whiteford’s Clare Lewis and Charles McCarthy examine the growing influence of independent sponsors and searchers in today's competitive private equity landscape. As billions of private equity dollars chase increasingly scarce opportunities, these entrepreneurial dealmakers are proving that relationships – not capital – are the true currency of successful acquisitions.

In their article, "The New Cowboy: Relationships Trump Cash in Private Equity and the Rise of the Independent Sponsors and Searchers," Lewis and McCarthy observe that, while the ability to write checks has exponentially increased, success in buying opportunities has become increasingly scarce. "Fundless sponsors," once a pejorative term, have demonstrated that sellers will endure a more uncertain deal process when the right buyer comes along. Through relationships with accountants, advisers, lawyers and bankers, these sponsors find opportunities that elude traditional fund managers.

Entrepreneurship Through Acquisition

For smaller transactions targeting companies with less than $4 million in EBITDA, Entrepreneurship Through Acquisition (ETA) has emerged as a popular approach. The traditional search fund model involves searchers raising capital from family offices or private equity firms, typically retaining only around 25% of the target company. Targets typically have EBITDA of $1-5 million at 4x-8x multiples.

The self-funded search model offers more risk but greater upside, targeting smaller companies with EBITDA of $500,000-$2 million at 3x-5x multiples. Financing typically combines SBA 7(a) loans, seller financing, personal equity (at least 10%) and external investor capital. Investors typically stay below 20% ownership to avoid SBA personal guarantee requirements, allowing searchers to retain majority ownership.

The Independent Sponsor Model

For larger transactions (more than $4 million EBITDA), independent sponsors have carved out their own niche. Many affirmatively choose this path to maintain freedom and avoid the expensive process of raising a blind pool fund. Most have long track records in private equity, M&A and investment banking, along with deep industry expertise. Typical economic terms include management fees of 3-5% of trailing twelve months EBITDA, carried interest of 10-30%, and closing fees of 1-5% of enterprise value. Sellers recognize the value these sponsors add through operational efficiencies and access to new markets.

Whether backed by deep industry experience or sheer entrepreneurial determination, these modern cowboys are reshaping private equity on their own terms, and M&A practitioners need to keep pace.

Follow this link to the full article.

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