Financial sponsor

A financial sponsor is a private equity investment firm, particularly a private equity firm that engages in leveraged buyout transactions.[1]

See also: Private equity firm

Sponsors and management

In addition to bringing capital to a deal, financial sponsors are expected to bring a combination of capital markets expertise, various important contacts, strategies for operational improvement, and the experience of owning leveraged companies.[2] 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.

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.

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.[3]

gollark: Idea: replace the boring tree structure of hierarchical companies with arbitrary randomly generated graphs.
gollark: No, to predict the consequences of any company action ever.
gollark: You can get an idea of what things are likely or unlikely. The monetary incentive is somewhat important.
gollark: This is one of those annoying things where we're limited to wild speculation so probably don't do anything weird businesswise.
gollark: Democratic ones theoretically allow more input from everyone, which should lead to decisions which consider their interests more and take into account information people know, but also run into whatever issues existing democracies have plus probably exciting new ones due to presumably having a direct democracy voting on a lot of things.

See also

References
  1. Private Equity Transactions: Understanding Some Fundamental Principles (American Bar Association)
  2. Private Equity as a Strategic Financing Tool for M&A (Orange County Business Journal)
  3. Financial sponsors profit from flotations in US (DowJones Financial News, 2007)



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