Published July 22, 2011

Working with Fundless Sponsors

By Scott Dickes

A little while back we wrote a post describing the differences between fundless sponsors and private equity firms, like Hadley Capital, that have committed capital.

We are frequently approached by fundless sponsors that would like to partner with Hadley Capital to complete an acquisition or leveraged buyout they have identified.  We enjoy looking at deals with fundless sponsors. In fact, Hadley Capital got its start many years ago as a fundless sponsor & we have walked in those shoes and appreciate the value a fundless sponsor can add to a small company acquisition.

However, to date, Hadley Capital has been unsuccessful in completing a transaction with a fundless sponsor.  Why is this?

A fundless sponsor wants (and needs) to be compensated (closing fees, on-going management fees, carried interest, etc.) as part of the acquisition. We appreciate this desire to be compensated.  However, in order to justify it the sponsor needs to add value at least in relation to their compensation level.

Fundless sponsors can add value in a number of ways:

1. Proprietary Deal – Identifying and negotiating the acquisition of a company in a proprietary manner – that is, a company that is not represented by an intermediary or has not been broadly marketed – is extremely valuable in the small company marketplace.

2. Value Purchase – If we value a target company at 1.0x and a fundless sponsor negotiates to buy the target company for 0.9x this is a source of immediate value add.

3. Operating Chops – Some fundless sponsors bring highly relevant operating experience to a target acquisition. Relevant operating skills can deliver near-term operating improvements in the form of higher margins, increased revenue growth, etc., resulting in significant value add.

Scott Dickes - General Partner

Scott founded Hadley Capital in 1998 with the objective of bringing a professional investment strategy to the small company market. Scott has spent the better part of two decades financing and growing small companies. It’s in his blood … he grew up visiting small companies on family vacations with his dad who was also a small company investor.

Scott works with Gillinder Glass, S&S, Custom Label, Harris Seeds, ISS, and W.C. Rouse, and was previously the chairman of the board of Packaging Specialists, JRI Industries and Kelatron, all former Hadley Capital companies.

He enjoys traveling with his family, flying (instrument rated pilot), rock climbing, golf, paddle tennis, and water skiing. Scott recently took up beekeeping as a hobby.

Scott is a Trustee of the Hadley School for the Blind (no affiliation). He holds a BA from Duke University and received his MBA from the Kellogg School of Management at Northwestern University. Scott and his wife have two teenage children.