Financial sponsor

Financial sponsor

A financial sponsor is a term commonly used to refer to private equity investment firms, particularly those private equity firms that engage in leveraged buyout or LBO transactions. [ [http://www.abanet.org/buslaw/blt/2008-01-02/blomberg.shtml Private Equity Transactions: Understanding Some Fundamental Principles] (American Bar Association)]

In addition to bringing capital to an investment, financial sponsors are expected to bring a combination of capital markets expertise, various important contacts, strategies for operational improvement and experience owning leveraged companies. [ [http://www.allbusiness.com/company-activities-management/company-structures/8912293-1.html Private Equity as a Strategic Financing Tool for M&A] (Orange County Business Journal)] As the owners of the company, financial sponsors rarely manage a company directly and are most active in issues relating to the company's capital structure and balance sheet as well as strategic initiatives including mergers and acquisitions, joint ventures and management restructurings. The company's CEO and other senior management maintain responsibility for day-to-day operational issues.

Financial Sponsors and Other Investors

Various investor classes look to the financial sponsor to generate value in a company as much as the management or operations of the company. In particular, debt providers are willing to extend credit in the form of bank loans, high-yield debt and mezzanine capital based in part on the reputation of and relationship with the financial sponsor. [ [http://www.gettingthedealthrough.com/narrative_chapter.php?id=43&sector_id=7 Global Overview: Year of the buyout] (Getting the Deal Through, 2007)]

Additionally, many companies owned by financial sponsors will raise equity in the public markets through an initial public offering or (IPO) as a means of exiting an investment. Public investors will seek to align their own interests as much as possible with those of the financial sponsor by limiting the financial sponsor's ability to sell shares and managing the use of proceeds from the offering. Various studies have been conducted to evaluate the impact of financial sponsor ownership on the performance of IPOs. [ [http://www.efinancialnews.com/privateequity/peoplemoves/content/2450554955 Financial sponsors profit from flotations in US] (DowJones Financial News, 2007)]

ee also

*Private equity
*Private equity firm
*Private equity fund
*List of private equity firms
*Leveraged buyout
*Management buyout

References



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