UNCHARTED NO MORE
HOW INDEPENDENT SPONSORS HAVE CARVED THEIR OWN PATH IN PRIVATE EQUITY
2025 INDEPENDENT SPONSOR REPORT
Welcome
When we launched our first Independent Sponsor Report in 2017, the independent sponsor sector was a largely uncharted landscape, with many considering it the “Wild West” of private equity.
Back then, there was no real roadmap. Fees and carry were often subject to intense pushback by capital providers, and independent sponsors often faced an uphill battle to convince sellers and capital providers of their value.
Through the launch of our initial Report and our six Independent Sponsor Reports that followed, it has been our hope to provide a roadmap for that uncharted landscape. We have sought to underscore the value of independent sponsors, to share their insights and advice, and to provide benchmarks for fees and carried interest so that independent sponsors and capital providers alike know what the market will bear.
In the eight years since our initial Report, we have seen the independent sponsor landscape shift dramatically.
The number of independent sponsors has grown exponentially — sellers and capital providers now increasingly embrace the asset class, fees and carry are more standardized and accepted, and now through
benchmarking, including through these Reports, there is undeniable evidence that the asset class can produce above-market returns.
Year after year in our Reports, we have seen the entrepreneurial spirit, creativity, and adaptability of independent sponsors, even when faced with a global pandemic, the high inflation and interest rate environment of 2022, and, most recently, tariff threats, persistent economic challenges, and policy uncertainty. Independent sponsors have continually risen to meet these challenges, finding opportunities where others see problems, tapping into markets that others overlook, and, in some cases, achieving outsized returns.
Our 2025 Report shows the continued evolution of independent sponsor landscape, and we look forward to seeing what the next several years will bring.
We are indebted to our survey respondents and our esteemed group of contributors for sharing their thoughts and experiences with us for this year’s Report.
We hope that you enjoy this Report, and we look forward to discussing our findings with you.
Sincerely,
Sylvie Gadant Managing Partner
Transaction Advisory Services Practice, Citrin Cooperman
The Research Firm Longevity
This is Citrin Cooperman’s sixth annual Independent Sponsor Report.* This year’s Report incorporates results from an online survey of independent sponsors and in-depth interviews conducted with leading independent sponsors and capital providers.
In our 2025 survey, 172 professionals active in the independent sponsor sector shared their views on topics such as deal flow, capital sources, deal economics, liquidity events, and industry outlook. The survey was conducted in March and April 2025 and followed by interviews with leading independent sponsors and capital providers in May 2025.
Of the 172 respondents, 151 identified themselves as independent sponsors (IS). Notably, 31% are at firms that have been in existence for a decade or longer. The majority (64%) of IS firms represented in this year’s Report have two or three principals, while 26% operate with a single principal.
The composition in terms of firm longevity and number of principals has remained relatively consistent across prior years of our annual survey. All major regions of the continental United States (U.S.) are represented by our respondent population.
Where relevant throughout the Report, we provide comparisons by firm tenure and across survey years to highlight trends and shifts within the sector.
*Citrin Cooperman issued annual Independent Sponsor Reports in 2017, 2018, 2019, 2023 and 2024. In 2020, we released our Independent Sponsor Special Report: COVID-19: Weathering the Storm.
**Please note that throughout this Report, figures may not equal 100% because of rounding.
“I think now is an exciting time to be an independent sponsor. This area of the broader M&A market is still inefficient, which means independent sponsors can find multiple arbitrage opportunities. Once a sponsor has built his or her community and ecosystem, the model can allow you to build generational wealth on your own terms. That’s why a lot of people who have been independent sponsors for 10 or more years would never do anything else.”
- Chelsea Celistan, Principal, Avante Capital
Do You Plan on Raising a Fund with Committed Capital?
Yes, within the next 2 years
Yes, eventually No Not sure
Independent Sponsor Transactions: A Snapshot
Number of Platform Transactions Closed as an Independent Sponsor by Firm Longevity* Number of Add-On Transactions Closed as an Independent Sponsor by Firm Longevity*
*Figures refer to all transactions closed in any year of the firm’s existence.
Transactions Anticipated to Close in the Next 18 Months: All IS Respondents
“It is encouraging that nearly all respondents plan to close a transaction in the next 18 months, though we note that our survey was conducted back in March and April before the escalation of the tariff wars. While things have somewhat stabilized since then, valuation mismatches linger, particularly in certain industries and sectors immune to tariffs. As such, it will be interesting to see whether our respondents’ acquisition plans will materialize as planned over the next few quarters.”
-Sylvie Gadant, Managing Partner, Transaction Advisory Services Practice, Citrin Cooperman
Independent Sponsor Transactions Profile
As in years past, most of our independent sponsor respondents (79% this year) are investing in or targeting companies with earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2 million to under $5 million. Companies with $5 million to under $10 million EBITDA also remain popular targets, with 64% of our IS respondents investing in or targeting companies in that range (multiple answers were accepted for this question).
Business Snapshot:
“It’s not surprising to me that 79% of Report respondents are targeting deals with EBITDA in the $2 to $5 million range because that’s the most inefficient part of the private equity market. Once EBITDA is above $5 million, it attracts more competition from traditional private equity funds, and therefore it may be harder for an independent sponsor to win the deal.”
- Richard Baum, Managing Partner, Consumer Growth Partners
Business Snapshot:
“We cannot overstate the increased quality, not just quantity, of people who are entering the independent sponsor space. New entrants are more pedigreed and seasoned than they were before. With the greater number of sponsors entering the space, as well as the tremendous success that several independent sponsors have achieved, the historical stigma associated with being an independent sponsor has largely dissipated.”
- Jacques Youssefmir, Partner, Ocean Avenue Capital Partners
The size of transactions targeted also differs by firm longevity. As was the case in our 2024 Report, younger firms (those that have been in existence for five years or less) are more likely than their older peers (firms that have been in existence for six years or more) to invest in or target companies at the low end of the spectrum, with EBITDA of less than $2 million. This year, older firms are more likely than their younger peers to target companies at the higher end of the spectrum, especially in the $10 million to $15 million EBITDA range. The reverse was true last year, especially for deals in the EBITDA range of $15 million or more.
Typical EBITDA for Companies Invested in or Targeted by Firm Longevity
Multiple responses allowed
Firms 5 years old or younger Firms 6 years old or older
Valuation Multiples
Within the past year, the majority of IS respondents (54%) have closed transactions at multiples of 4x to under 6x EBITDA. In all years of our Report, this has been the most common multiple range for transactions closed by IS respondents, though this statistic is down from last year when 64% of respondents closed transactions at 4x to under 6x EBITDA.
Seventeen percent of respondents have typically closed transactions at less than 4x (up from 12% last year), and 37% of respondents have closed transactions at multiples of 6x to under 8x, which is up from 31% last year. Multiples of 8x or more remained relatively steady since last year.
“I’m surprised that there were more transactions closed at 6x to 8x in this year’s survey [which relied on data for transactions closed in 2024] versus last year’s [which relied on data from transactions closed in 2023],” noted Richard Baum. “2024 was not a particularly great year for private equity, and I would have expected multiples to be lower than those for 2023 transactions.”
“It could be that the transactions at 6x to 8x multiples were with more traditional capital providers, or it could be transactions where the independent sponsors were finding themselves in competition with traditional private equity funds, and thus they needed to bid more,” Richard Baum explained. “However, the more you bid, the harder it is to get a satisfactory return when you exit.”
“We’re seeing an increasing trend toward higher-quality deals priced at full multiples, especially in mid-2025,” noted Founder and CEO, IMB Partners Tarrus Richardson. “The market has been challenging in the past 18 to 24 months,” he acknowledged. “It opened up in Q1 and Q2 with a slight uptick as many believed interest rates were going down, but by Q3, the election and post-election developments cooled sentiment, and deal volume declined as broader macro forces weighed on buyers and sellers.”
“Deals that are getting done are higher quality and clearing at full multiples: assets that used to trade at 4x to 6x now change hands at 6x to 9x,” Tarrus Richardson added. “These transactions are harder to close because many sellers still assume independent sponsors only chase off-market bargains,” he explained. “That said, I think there are opportunities for skilled independent sponsors who can buy a high quality business at a fair price and then unlock value through targeted operational improvements and organic growth.”
Liquidity Events
Forty-seven percent of IS respondents have had one liquidity event or more. Not surprisingly, older firms are more likely than their younger peers to have had liquidity events: 76% of older firms (those in existence six years or more) have had one or more liquidity event(s), whereas only 15% of younger firms (those in existence for five years or less) have had one or more liquidity event(s). Twenty-one percent of older firms have had five or more liquidity events.
Overall this year, 53% of respondents have not had a liquidity event, which is an increase from last year when only 43% of respondents did not have a liquidity event. This increase may be explained by the fact that this year’s IS population was slightly less experienced than last year (only 31% of this year’s respondents have been in business for 10 years or more versus 40% of last year’s respondents).
15% OF YOUNGER FIRMS HAVE HAD ONE OR MORE LIQUIDITY EVENT(S)
76% OF OLDER FIRMS HAVE HAD ONE OR MORE LIQUIDITY EVENT(S)
21%
OF OLDER FIRMS HAVE HAD FIVE OR MORE LIQUIDITY EVENTS
As was the case in our 2024 Report, a small percentage of the oldest firms represented this year (16% of firms 10 years or older) have not yet had a liquidity event. “In a challenging exit environment such as this one, it’s not surprising that some independent sponsors are deciding to hold onto their investments,” noted Sylvie Gadant. “Independent sponsors have the luxury of not having to exit on a predetermined timeframe like their funded private equity counterparts, which is one of the benefits of the independent sponsor model.”
“In addition, a longer hold period can allow independent sponsors the time to fully realize their company’s potential for organic as well as add-on growth, thereby achieving the high investor returns that we are seeing from many of our IS respondents,” added Sylvie Gadant.
Number of Liquidity Events (LE): Older Versus Younger Firms
Typical Hold Period for IS Investments
Less than 3 years
3 to under 5 years
Investor Returns
Of those survey respondents who have had liquidity events, 68% have returned 3x or more to investors. Thirty-seven percent of these have returned more than 5x to investors, which is an increase from last year when 30% of respondents returned more than 5x to investors.
Average Realized Equity Multiple of the Investment Returned to Investors (Only Those IS Respondents Who Have Had Liquidity Events)
68%
37% 3x OR MORE 5x OR MORE
“Looking at these returns, it’s really hard to dispute the value of the asset class,” said Caroline Dallas, director, GEM.
“I think when you have a principal-focused, rifle shot approach to investing in good but small companies, you can create a portfolio of investments with a positive convexity return profile, where the probability and magnitude of the upside significantly exceeds the downside risks,” observed
Jacques Youssefmir, partner, Ocean Avenue Capital Partners.
“These outcomes highlight the power of the independent sponsor model,” said Tarrus Richardson. “We operate like entrepreneurs inside our portfolio companies – relentlessly pursuing organic growth in addition to M&A and add-ons, which enables us to achieve outsized returns.”
“Year after year, Independent Sponsor Report respondents’ strong returns have underscored the value of the asset class and have shown that the model is thriving.”
-Sylvie Gadant, Managing Partner, Transaction Advisory Services Practice, Citrin Cooperman
Deal Sources
In this year’s Report, business brokers were the most popular deal source for our independent sponsor respondents, cited by 74%. Boutique investment banks were also a popular source, cited by 65% of respondents. Regional or national investment banks (cited by 51%), company owners/management (40%), industry research/cold calling (35%), and operating executives (31%) were the next most popular sources.
“I’m not surprised to see business brokers as the most popular deal source,” said Caroline Dallas. “Business brokers often view independent sponsorled transactions as an area of real opportunity with a lot of value to be found once you look under the hood.
Typically, the larger the transaction, the more likely it is that a refined process already exists, and the less value there is to create.”
There have been some significant shifts in deal sources since last year’s Report. The most dramatic shift has been in the increased popularity of regional or national investment banks, cited by only 26% of respondents last year but 51% this year. “This may indicate independent sponsors are pursuing larger deals, and new independent sponsors are leveraging their investment banking relationships from prior institutional PE experience,” said John Basile, Senior Account Manager, Citrin Cooperman.
Most Significant Sources of Deal Flow 2025 Versus 2024
Most Significant Divergences in Deal Sources Across Firm Longevity
Deal sources were mostly similar across firm longevity, but there were meaningful divergences in certain areas. Not surprisingly, younger firms were more likely than their older peers to rely on industry research and cold calling to source deals. But they were also more likely to source deals from company owners or management than their older firm peers. Firms
Have You Ever Closed a Deal From a Broken Auction Process?
Firms 5 years or younger Firms 6 years or older
Among all IS survey respondents, 46% have closed deals from a broken auction process. Most of these are from firms 6 years old or older.
“In this environment, we are more likely to see sellers who reconsider selling or come out with valuations that are too high,” said Chelsea Celistan, principal, Avante Capital Partners. “It is very easy to get something under a LOI, but it can be hard to get it across the finish line when you are looking at the types of transactions common among independent sponsors – those with a bit of hair on them.”
Deals from broken auction processes can be a particularly good source of transactions for independent sponsors.
“At least a third of my deals or more are from broken processes,” stated Tarrus Richardson. “If a seller has gone through a broken process, they often get fatigued and become more realistic. They also become more focused on working with buyers they like and trust. That is when an independent sponsor can be a very good fit if they offer a hands-on, dedicated approach.”
Partnerships
Twenty-six percent of our IS respondents have partnered with another independent sponsor on a transaction, which is up slightly from last year when 23% had partnered. Similarly, slightly more independent sponsor respondents have considered partnering (but have not yet done it) this year – with 28% of respondents considering it, versus last year when only 23% had considered it.
“I expect these numbers will continue to increase and become one of the most significant trends we will see in the sector over the next few years,” Richard Baum forecasted.
Interestingly, as was the case last year, survey respondents from older firms were more likely than their younger firm peers to have partnered on a transaction, with 40% of older firms but only 10% of younger firms having partnered on at least one transaction.
The idea of partnering has also become more popular among older firm respondents in just a year’s time, with 25% of older firms having considered partnering (but not yet partnered) versus last year when only 12% of older firm respondents had considered it. In contrast, the idea of partnering has become slightly less popular among younger firm respondents in the past year, with 35% of younger firms having considered it last year, but only 30% having considered it this year.
Among those IS respondents who have partnered, the most likely reasons for partnering were the need for complementary experience levels/IS longevity (cited by 47%), industry expertise (44%), need for additional bandwidth (42%), and size of the transaction (30%).
Only 19% of survey respondents who partnered indicated they did so because they needed access to additional capital.
“We’re seeing a lot more pairings between newer and experienced independent sponsors,” observed Richard Baum. “Also, in our case, we will partner with another independent sponsor if they need deep industry expertise, and, from our perspective, such partnerships enable us to increase our bandwidth as a result of additional resources.”
Top Reasons for Partnering with Another IS
Percentage of IS Respondents*
Complementary experience levels and longevity Need for industry expertise Need for additional bandwidth
Complementary experience levels and longevity
Need for industry expertise
of transaction
Need for additional bandwidth
Size of transaction
Need for access to additional capital
Size of Transaction that IS Respondents Have Partnered On
Multiple responses allowed
to under $15M
*Of only those IS survey respondents who have partnered with another IS on a transaction.
Most partnerships are on transactions between $2 to $10 million EBITDA, which are also the most common EBITDA ranges for companies targeted by our IS respondents overall.
“Going forward, I expect we will see more partnering for companies generating higher EBITDA where there is sufficient independent sponsor economics in a transaction to go around,” noted Richard Baum. “Independent sponsors need to share a single set of economics so that, in the seller’s eye, the independent sponsors appear to act as one. Simply, the bigger the deal, the more money there is to spread around.”
Looking forward, 41% of respondents expect to see an increase in partnerships among independent sponsors over the next year.
Capital Sources
The top capital sources for this year’s independent respondents are family offices (cited by 62% of independent sponsor respondents), high-net-worth individuals (cited by 55%), SBIC funds (cited by 53%) and mezzanine funds that co-invest (referred to hereafter as “mequity” funds) (cited by 45%).
One-stop funds (funds that underwrite all the debt and equity), buyout funds and independent sponsors’ own funds trailed behind.
Over the years, we have seen some significant changes in the capital sources relied upon by respondents. The biggest shift has been with SBICs, which have seen a 19-percentage point increase in popularity over the past three years. However, we have seen a decrease in the popularity of mequity funds, buyout funds, and use of independent sponsors’ own funds as capital sources.
One constant in all the years of our Report has been the dominance of family offices as the top capital source for independent sponsor respondents. Family offices did experience an uncharacteristic dip in popularity last year, though they still remained the most popular source that year and have bounced back this year.
Younger firms (those in existence for five years or less) are more likely than their older firm peers (those in existence for six years or more) to rely on family offices (68% of younger firms versus 57% of older firms), high-net-worth individuals (61% versus 49%) and one-stop funds (36% versus 27%). Younger firms are less likely to rely on mequity funds (41% of younger firms versus 48% of older firms) and buyout funds (20% versus 27%).
“The independent sponsor space used to be considered the Wild West of private equity, but today it is a mature asset class staffed by GPs with deep experience and backed by a well-established capital base eager to invest deal-by-deal in an organized, responsive manner.”
- Tarrus Richardson, Founder and CEO, IMB Partners
Top Capital Sources Through the Years: 2017 Through 2025*
Top Differences in Capital Sources Across Firm Longevity,
IS Respondents
Family offices are also the most likely lead investor (cited by 22% of respondents). SBICs (cited by 18% of respondents), mequity funds (cited by 13%), buyout funds (cited by 11%) and one-stop funds (cited by 11%) were the next most likely lead investors. Fifteen percent of respondents had no lead investors.
Fifty-nine percent of respondents often use repeat funding relationships.
“The high percentage of repeat funding relationships speaks to the institutionalization of the independent sponsor space,” said Caroline Dallas.
“Additionally, I think the caliber of LP that is interested in this area has gone up exponentially,” she noted. “We’ve seen a significant increase in the amount of buyout funds, institutional investors and institutional-like family offices and endowments who are now interested in this space.”
Evolution of Capital Sources: Independent Sponsor Spotlight: LP First Capital
LP First Capital has used a variety of capital partners throughout the lifetime of the firm.
“In our early days, we often partnered with committed private equity funds as general partners, typically because we saw a road map to needing to deploy a lot of capital,” said Logan Lowery, managing partner, LP First Capital. “By working with a single partner, we could avoid having to pursue numerous capital sources, and we wouldn’t have to raise capital for each add-on.”
“Also, the private equity GPs tended to be more receptive to starting with a smaller acquisition of $2 million EBITDA and then following with a buy and build strategy,” added Thomas Ince, managing partner, LP First Capital. “Not all family offices and SBICs are positioned to be ideal solutions for a true buy and build strategy; however, there are some exceptions.”
“However, more recently, some GPs are more likely to have heartburn over tiered carried interest structures that get above 20%,” said Logan Lowery. “Because they are limited to 2% and 20%, some don’t care if our returns are 4x to 5x, they don’t want us to make a higher promote than they do.”
That was one of the reasons the firm changed its focus and started pursuing capital from family offices, institutional investors, and funds of funds that are focused on independent sponsors. For example, one institutional investor gave the firm a committed structure to draw down capital at their discretion. “They looked at us more like the way a traditional LP evaluates a potential manager, evaluating the team, our experiences individually and collectively, and how long we’ve worked together as a team — our track record,” explained Logan Lowery.
“Going forward, we may shift away from a deal-by-deal structure to a committed structure per deal or even a fund,” noted Thomas Ince. “Our goal is to have committed capital for each platform, so we don’t have to go back to our investors to raise for each add on.”
Thomas Ince Managing Partner
First Capital
Logan Lowery Managing Partner
First Capital
Placement Agents
Twenty-one percent of independent sponsor respondents have used placement agents to raise capital.
“We’re more likely to see independent sponsors use placement agents for larger deals,” Nichol Chiarella, partner and Mergers & Acquisitions Tax Practice leader, Citrin Cooperman. “Additionally, they can help speed up the capital raising process for newer sponsors who don’t have an established capital provider network yet.”
Some placement agents now have dedicated resources for independent sponsor transactions, recognizing that it is a growing market.
Nevertheless, some question the need for placement agents.
“I’m surprised that 21% of respondents are using placement agents,” said Caroline Dallas. “We always say that great deals are going to get capital, and placement agents aren’t cheap.”
Broken Deal Costs
As in prior years of our Report, this year’s independent sponsor survey respondents shoulder or share broken deal costs in most cases. Thirty-two percent of independent sponsor survey respondents cover deal costs themselves (up from 28% last year), and for 29% of respondents, they share broken deal costs with their equity funding source (slightly down from 31% last year). For 17% of respondents, the equity funding source fully covers broken deal costs, and for 16% of respondents, the sponsor covers broken deal costs prior to partnering with the equity funding source and the equity funding source covers broken deal costs thereafter.
Even if costs are shared or fees are discounted, broken deal costs can pose a significant risk to the financial stability of an independent sponsor, particularly if they are new to the sector or lack substantial reserves.
Caroline Dallas agreed. “Before we expanded our work with independent sponsors, we spent a lot of time trying to understand their pain points, and the issue that consistently came up was broken deal fees. These fees were frankly very scary for folks who left their prior firm with a lot of economics on the table and who were not swimming in cash,” she explained.
Our contributors underscored the need for alignment of incentives when it comes to determining how broken deal costs will be allocated.
“We realized that having the independent sponsor bear the burden of broken deal fees could create a negative incentive for someone to close on a deal so they can collect fees again,” explained Caroline Dallas. “That is why we share broken deal fees, either splitting them or handling them pro rata. By sharing them, we can create more alignment.”
Avante Capital has a similar point of view. “We are willing to take on the bulk of broken deal costs, but we want the independent sponsor to have some skin in the game,” said Chelsea Celistan.
If You Pay for Broken Deal Costs, How Do You Pay for Your Share?
I pay with my own funds
The acquisition target pays for broken deal costs 100% contingent fee arrangement with service providers Service providers roll fees into the next deal
pay for broken deal
Equity Contributions
Seventy-two percent of IS respondents are required to contribute equity by their capital providers, which is roughly the same as our 2024 Report. This percentage has increased since our 2019 and 2023 Reports when just over 60% were required to contribute equity.
When IS survey respondents contribute capital, 86% of this year’s respondents contribute their own funds, up from 81% last year. Fifty-six percent of this year’s respondents roll their closing fees into equity, which is down from 61% last year. Of those respondents who roll their closing fees into equity, 42% fully roll their fees, which is a substantial increase since our 2019 Report, when only 26% fully rolled their fees.
Typical equity participation on the closing date is two to five percent for the largest portion of IS respondents this year at 37%. This percentage has been roughly consistent since our 2023 Report but represents a meaningful increase since our 2018 Report (when we first asked this question) when only 27% were in this range. The majority of IS respondents’ equity vests 100% at close, which was also the case in prior years of our Report.
As with broken deal costs, negotiations around independent sponsor equity contributions entail a balancing act. Accordingly, our contributors emphasized the need for a bespoke approach when determining the right equity contributions for an independent sponsor.
“We really try to understand an independent sponsor’s personal financial situation when we’re determining what percentage of the equity they should provide,” explained Caroline Dallas. “We want to make sure we are aligned but also that they are not feeling incredibly stressed by the amount of their net worth that is tied up in the deal because that can create a perverse incentive as well.”
“One of the biggest issues we talk about internally is the issue of alignment between independent sponsors and us as capital providers,” noted Chelsea Celistan. “It’s particularly important if the capital provider is on both the equity and debt side of the deals. We are very clear about mandating that independent sponsors put in their own dollars in a meaningful way. What is ‘meaningful’ is not a specific number because it depends on the person, but it is a critical point because you need everyone rowing in the same direction and dedicated to the success of the investment in both good times and bad,” she underscored.
Business Snapshot:
“In nearly all of our deals, a sponsor’s transaction fee is rolled into the deal. I don’t think anyone wants to do a deal with an independent sponsor who is literally taking significant cash off the table in the deal. Any contribution beyond that is contextual to who the sponsor is, where they are in their career, their network, and how many deals they have, among other things. But I think most people are like us, in that they want their independent sponsor to have skin in the game.”
- Jeffrey Ennis, Partner, Ocean Avenue Capital Partners
Percentage of IS Respondents*
Contribute own funds
Private equity from friends and family Roll closing fees into equity
Raise equity from other investors (e.g., family office, HNW individuals)
Raise equity from other investors (e.g., family office, HNW individuals)
Private equity from friends and family
closing fees into equity
Do You Typically Roll Your Closing Fee into Equity? Percentage of IS Respondents*
Always in full
Always a portion of the fee is rolled into equity
Sometimes
Never
Other
Always in full: 42%
Always a portion of the fee is rolled into equity: 30%
Sometimes: 16%
Never: 8%
Other: 4%
“We have achieved our level of success because we invest 30% to 90% of the GP economics in every deal. Wealth creation happens from direct ownership. I am the largest investor in every one of our deals. Investors want to see you have skin in the game, and direct ownership allows you to do that. We should be encouraging sponsors to put up more of the GP capital. It rewards you if you get exceptional growth in a way that nothing else can. Carry matters, but on a small transaction, it is limited. True value is created through equity ownership.”
Business Snapshot:
- Tarrus Richardson, Founder and CEO, IMB Partners
Fees and Carried Interest
When we began examining independent sponsor fees and carried interest in our second Report seven years ago, there was still much debate around independent sponsor compensation. Back then, capital providers routinely pushed back on independent sponsors’ proposed closing and management fees as well as carried interest. Many respondents described capital providers as having the “upper hand” in negotiations, often dictating terms, especially to less established sponsors.
Through the years, those dynamics have changed. Benchmarking, including through our Reports, has helped show independent sponsors and capital providers alike what the market will bear. Fees have
become more accepted and standardized, along with certain aspects of carried interest calculations. However, variations remain, especially around carried interest which continues to be the most negotiated area of independent sponsor compensation.
As a general matter, there is optimism about how independent sponsor compensation has changed. This year, 53% of our more experienced IS survey respondents (those in business three years or more) believe it’s easier to negotiate deal economics with capital providers now versus three to five years ago. This has been the majority view since we first asked this question in our 2023 survey.
“Because the independent sponsor asset class has become more accepted by nearly every constituent, sponsors have more negotiating power than they used to. The asset class is no longer the Wild West that it once was.”
- Caroline Dallas, Director, GEM
Closing Fees
Closing fees are an accepted aspect of IS compensation, as evidenced by the fact that only 3% of IS respondents forgo them (down from 9% in our initial 2017 Report). There has also been increasing consensus around the calculation used for closing fees, with 82% of this year’s respondents using a percentage of transaction value to calculate their closing fee, versus 57% using this calculation in 2017.
When closing fees are a percentage of transaction value, that percentage is typically 2% according to 56% of respondents. Closing fees were slightly more likely to be at 3% or more of transaction value this year versus last year.
Closing fees have also increased as a dollar value through the years. While $251,000 to $500,000 has always been the most common fee range through the years of our survey, we have seen considerable growth in the rate of those receiving closing fees of over $500,000, from just 10% of respondents in 2017 to 28% of respondents this year.
“In the past several years, our independent sponsor survey respondents have been targeting higher EBITDA transactions than in earlier years of our Report,” observed Nichol Chiarella. “Therefore, it is not surprising that we’ve seen a commensurate increase in closing fee dollar amounts over the past three years. In addition, the higher closing fee amounts are a testament to the greater acceptance of independent sponsor fees overall.”
Most Popular Closing Fee Calculations: 2018 Through 2025 Reports
We first asked this question in our 2018 Survey.
Closing Fees as a Dollar Amount Through the Years
Closing Fee as a Percentage of Transaction Value: 2024 Versus 2025 Reports
Annual Management Fees
Annual management fees are most often calculated as a percentage of EBITDA with a floor and a cap, according to 51% of IS respondents. This formulation has been the most popular way to calculate management fees since 2018, when we first asked this question.
When respondents use an EBITDA percentage to calculate their management fee, 69% typically use 5% of EBITDA, which is up from our 2019 survey (the first time we asked this question), when just 49% used 5% EBITDA.
As a dollar amount, management fees are most typically $251,000 to $500,000 for 54% of respondents. This represents a significant increase since our 2018 Report when only 39% received fees in this range. Since our 2023 Report, we have seen little movement in typical management fee dollar amounts across all fee ranges, suggesting increased standardization of this aspect of independent sponsor fees.
One aspect of management fees that has been debated through the years is whether independent sponsors should forego management fees when a portfolio company is struggling. Some contributors believe independent sponsors should continue to take management fees on the theory that if the company is not performing, the sponsors will be more involved.
Other contributors believe sponsors should stop taking management fees when a company is underperforming.
As Tarrus Richardson explained, “There should be the flexibility to suspend management fees when the company is underperforming. When that happens, we move quickly because we work on behalf of all shareholders – the last thing I want is to collect a fee while a business is off the rails, and no one else wants that either,” he added.
Most Popular Ways to Calculate Management fees 2025
Percentage of IS Respondents*
If Your Annual Management Fee is Typically a Percentage of EBITDA, What is That Percentage?
Carried Interest
Though carried interest is the area of independent sponsor compensation with the greatest variability, commonalities have emerged in areas such as minimum carried interest and hurdle rates. In other aspects, we have seen an evolution, with terms becoming more favorable to independent sponsors in areas such as maximum carried interest rates and the use of full catch-ups.
Minimum carried interest is firmly within the 10% to 25% range and has been since we first asked this question in 2019. There has been a slight uptick in the percentage of respondents who typically have minimum carried interest of 25% or more, but that remains a very small percentage (this year, just 5%) of our respondents.
Maximum carried interest rates have jumped significantly over the years, with 64% of this year’s respondents obtaining a maximum carried interest rate of 25% or more on a typical deal. In 2019, only 37% of respondents were able to reach this carried interest level. The use of this carried interest range has also increased significantly since last year, when just 45% of respondents were able to obtain 25% or more carried interest.
Multiple on invested capital (MOIC) continues to rise in popularity as the basis for hurdle rates, with 50% of respondents relying on it this year, up from 2019 when just 27% used MOIC. Internal rate of return (IRR) hurdles are now only used by 20% of respondents, but they were our most popular hurdle rate basis in 2019. IRR has even decreased in popularity since last year, when 30% of respondents used IRR as the basis for their hurdle.
The most typical hurdle rate is 8% to 9.9%, according to 63% of respondents. This has been the most typical hurdle rate since we first asked this question in 2019.
Seventy-four percent of respondents use a full catchup, which represents an increase since 2019 when only 61% of respondents used a full catch-up. There has been a corresponding decrease in those who don’t use catch-ups, from 22% of respondents not using any catch-ups in 2019 versus only 10% not using them this year.
Minimum Amount of Carried Interest on a Typical Deal Through the Years
Maximum Amount of Carried Interest on a Typical Deal Through the Years
Basis for Hurdle Through the Years
Benchmarking: Most Typical Carried Interest Formulas
Respondents Using MOIC-Based Hurdles: Typical Carried Interest Formulas
10% after 1-2x MOIC, 15% after 2-3x MOIC, 20% after 3-4x MOIC, 25% above 4x MOIC
20% after 1-2x MOIC, 25% after 3x MOIC
after 1-2x MOIC, 20% after 2x MOIC
Respondents Using IRR-Based Hurdles: Typical Carried Interest Formulas
8-10%
after 8-10% preferred return
25% after 8-10% preferred return
after 8-10% preferred return, 15% after 15% IRR, 20% after 20% IRR, 25% after 25% IRR
after 8-10% preferred return, 20% after 20% IRR
Carried interest formulas remain the area of IS compensation with the greatest variability. Many factors influence carry such as the independent sponsor’s experience and bargaining power, the types of capital provider involved in the transaction, the growth strategy for the company and the nature of the deal itself.
“When discussions fall apart between independent sponsors, it is typically around carry, which has been
the biggest sticking point lately,” noted Caroline Dallas.
“We typically see a tiered back-end incentive, which has been the case since independent sponsors were called fundless sponsors,” said Jeffrey Ennis. “Typically, an independent sponsor gets 10% carried interest after meeting a preferred return hurdle of 8% to 10%. The carry percentage can increase from there based on achieving additional return hurdles.”
Respondents Using a Combination of IRR and MOIC Hurdles: Typical Carried Interest Formulas
Multiple responses allowed
after
after 8-10% preferred return, 15% after 2x MOIC, 20% after 2-3x MOIC
after
Caroline Dallas noted that there is an increasing trend of sponsors who are requesting outsized levels of carried interest.
“As the space has grown and the caliber of talent has increased, people are now asking for outlandish waterfalls, sometimes even beyond market value for a funded private equity firm,” Caroline Dallas explained.
“We’re seeing proposals for levels of carry that are just eye-popping. That may be acceptable if, for example, the sponsor is making an 8x gross return, and the
capital provider is making a 6x net, but it does feel a bit extreme.”
Chelsea Celistan concurred. “We have seen very experienced sponsors get super carry with outsized promotes, but it’s unlikely to see that with newer sponsors.”
“One of great things about being an independent sponsor is that it is the one area of the broader M&A market that doesn’t have price transparency, and, therefore, there’s ability to find arbitrage opportunities.”
- Chelsea Celistan, Principal, Avante Capital Partners
Fees and Carry: Outlook
Looking forward, there was no clear consensus among respondents about how IS deal economics will evolve in the next three to five years.
Many respondents expect better economics in the future due to the maturation and acceptance of the asset class, as well as the influx of new capital providers interested in the space. Though nearly all of these respondents tempered that optimism with several caveats.
“The best [independent sponsors] will continue to garner premium economics,” noted one respondent. “The rest will struggle.”
Jacques Youssefmir echoed the sentiment. “I think as the market gets more efficient, the crème de la crème will be able to shop around for better terms.”
As another respondent said, “Economics will be deal dependent, rather than market dependent.”
A few contributors noted the potential for outsized returns in the future.
“We have been seeing some independent sponsors employ a waterfall similar to what you see in the selffunded searcher space, say 40% plus carry, and we
may see this more in the future. Albeit, you will not see traditional institutional capital partners on those cap tables, and it will be more of a retail investor base,” noted Thomas Ince.
Other respondents, albeit a smaller number, were less optimistic.
One respondent forecasted, “Economics will worsen due to the number of independent sponsors in the market.”
Several respondents and contributors expressed a similar view.
“I think with so many new independent sponsor entrants, you could see the economics for independent sponsors actually come down a little bit,” said Logan Lowery. “Newer independent sponsors may not have the ability to stretch out a closing timeline with the seller and may feel forced to take the first or second term sheet,” he explained.
Sector and Economic Outlook
In March and April 2025, we surveyed respondents on their outlook for the sector, including deal sourcing, valuations, and competition over the next year. Since then, the macroeconomic landscape has shifted significantly, amid worries about the labor market, inflation and the imposition of import tariffs.
In light of those changes, we present the survey findings from March and April alongside updated insights from our more recent conversations with contributors. While some earlier concerns have eased, persistent economic challenges and ongoing policy uncertainty continue to cast a shadow over the sector’s near-term trajectory.
“The macro environment is really the biggest question mark for all of us,” underscored Caroline Dallas.
“All bets are off at this point in many areas,” noted Richard Baum. “The market has temporarily seized up for any company directly impacted by tariffs. Very few deals are getting done in the public or private sector if tariffs are involved. The deals that are getting done are those where the impact of tariffs is minimal, or service-based businesses,” he added.
However, as our contributors noted, there are pockets of opportunity for independent sponsors, even in these uncertain times.
“In this uncertain economic climate, there may be opportunities for independent sponsors even within industries hit by tariffs because they are dealing with smaller businesses that are more localized and not as reliant on debt to make an outsized return,” said Chelsea Celistan.
“That’s another thing that we love about the independent sponsor space in addition to the
insulation from some broader macroeconomic factors: it’s really an operations-first approach to improving a business, not just a financial engineering exercise,” she explained.
Survey Respondents’ Outlook as of March and April 2025
• In terms of deal sourcing, a plurality of our survey respondents (42%) expected conditions to remain the same (the remainder were almost evenly split as to whether it would be harder or easier to source deals).
• Target company valuations were also expected to remain the same according to a plurality of respondents (in this case, 39%), the rest were nearly evenly split (between whether valuations would improve or worsen).
• Almost half of respondents (48%) expected capital sourcing for independent sponsors to improve over the next year. Thirty percent expected sourcing to remain the same, and 19% expected it to worsen.
• There was substantial consensus on the question of whether competition among independent sponsors will increase over the next year. Seventyfour percent of respondents expected IS competition would increase in that timeframe.
“LPs are asking GPs to exit and generate DPI (Distributed to Paid-In Capital) from their longer dated portfolio companies, say vintage 2014 to 2021,” noted Tarrus Richardson. “These exits are going to produce lower-than-expected returns, particularly in the large and mega-cap PE portfolio company exits where valuations have come down meaningfully,” he forecasted. “The lower middle market is not experiencing the run up or run down in valuations as much so the market is both more active and delivering solid returns in this current market, which is good news for independent sponsors.”
Several contributors expect capital allocators will increasingly invest on a deal-by-deal basis – which would benefit independent sponsors – and shift away from investments in blind pool structures.
“We don’t see a scenario where the capital allocators want to return to more blind pool funds,” advised Jeffrey Ennis. “There’s been an evolution away from that. We expect more pension plans, foundations and endowments will do more co-investing internally and may start to do some independent sponsor investing internally.”
“I think we will see more committed structures from institutional LPs where they’ll allocate $50 million for a strategy and sponsors will go through their vetting process,” Thomas Ince explained.
Other contributors predict the rise of committed equity
structures to fund independent sponsor transactions. “I think we’ll see more groups like Align Collaborate enter the space, and I think that’s a really great thing for independent sponsors because equity is hard to come by,” said Logan Lowery. “These groups will put more pressure on SBICs and will allow independent sponsors to put less leverage on closing transactions.”
As a general matter, many respondents and contributors expect more investors will enter the sector, seeking access to lower middle market transactions, for which independent sponsors are uniquely positioned.
As we saw in our 2020 Independent Sponsor Report: COVID-19, Weathering the Storm, while economic turbulence brings challenges, it also brings unique opportunities for those independent sponsors who are resilient and adaptable.
“Many companies have taken a hard hit which may lead to some compelling investment opportunities,” said Jacques Youssefmir. “That can create a strong pipeline of potential deals for independent sponsors who have a special situations background.”
“We are optimistic about the path ahead for the independent sponsor asset class,” stated Sylvie Gadant. “As we’ve seen in our 2020 Independent Sponsor Special Report, independent sponsors have risen to meet unprecedented challenges before, and we have no doubt they will continue to do the same in this uncertain climate.”
“I think independent sponsors will continue to outhustle and outflank larger institutional partners and be able to get deals done. And I think you will see the continued rise of the independent sponsor model.”
- Thomas Ince, Managing Partner, LP First Capital
Conclusion
The independent sponsor model continues to evolve, gaining both traction and sophistication in a dynamic and often unpredictable market environment. This year’s findings underscore a sector marked by resilience even as economic headwinds, shifting deal dynamics, and policy uncertainty introduce new layers of complexity.
Independent sponsors are meeting these challenges with ingenuity and persistence. From navigating tighter capital markets and recalibrating valuations to forging new partnerships and tapping into emerging sources of capital, they continue to demonstrate a strong capacity to adapt and innovate. As the landscape matures, we expect more capital providers will enter the space and that we will see an increase in the number of funds created for independent sponsor-led transactions because the returns of the asset class are undeniable.
We have documented the evolution of the independent sponsor asset class since our first Independent Sponsor Report eight years ago. While the success of the sector does not surprise us — independent sponsors have always been remarkably creative and adaptable — we are truly impressed by how quickly the sector has matured and how enthusiastically it is now being embraced by both sellers and capital providers alike. We look forward to seeing the continued evolution of the asset class over the next eight years.
About Our Contributors
CITRIN COOPERMAN
Sylvie Gadant, Managing Partner, Citrin Cooperman | sgadant@citrincooperman.com
Sylvie Gadant is the managing partner of the Transaction Advisory Services Practice and a partner within the firm’s Private Equity and Capital Markets Practice. She leads buy-side and sell-side due diligence engagements for private equity firms, independent sponsors, family offices, and strategic buyers.
Nichol Chiarella, Partner, Citrin Cooperman | nchiarella@citrincooperman.com
Nichol Chiarella is the firm’s Tax Mergers and Acquisitions Practice leader and has two decades of experience in public accounting. She provides high-level tax planning and consulting services related to buy-side, sell-side, and restructuring transactions involving private equity firms, independent sponsors, closely held businesses, business owners, and high-net-worth individuals.
John Basile, Senior Account Manager, Citrin Cooperman | jbasile@citrincooperman.com
John Basile is a senior account manager, focusing on business development for the firm’s advisory practices and working with independent sponsors, private equity & credit firms, and other capital markets clients. Before joining Citrin Cooperman, John spent eight years in institutional sales with two of the leading research firms in the alternative investments sector.
INDEPENDENT SPONSORS
Richard Baum, Managing Partner, Consumer Growth Partners | rbaum@consumergrowth.com
Richard Baum co-founded Consumer Growth Partners in 2005 as a private equity investment and advisory firm with an exclusive focus on middle-market specialty retail and non-perishable branded consumer products companies. He also is a partner in the advisory firm Founder Solutions that provides a broad range of strategic and operational advisory services to consumer/retail companies that have a transaction in their future but for a variety of reasons may not be ready to take in equity capital at the present time. Learn more at: www.consumergrowth.com and www.founder-solutions.com
Thomas Ince, Managing Partner, LP First Capital | thomas@lpfirst.com
Thomas Ince is co-founder and managing partner at LP First Capital, where he leads investments in fragmented, non-discretionary service sectors including commercial, consumer, education, and healthcare services. A seasoned entrepreneur, Thomas founded and successfully exited multiple businesses before establishing LP First Capital in 2018. Since then, he has guided the firm in building seven platform investments and completing over 30 add-on acquisitions, while actively overseeing several portfolio companies. Learn more at: www.lpfirst.com
Logan Lowery, Managing Partner, LP First Capital | logan@lpfirst.com
Logan Lowery is managing partner at LP First Capital, where he leads the firm’s investment strategy, deal sourcing, and portfolio growth initiatives. He focuses on scaling service-based and trade services businesses through strategic acquisitions and operational improvements. Prior to joining LP First Capital, Logan held roles at The CapStreet Group and Tritium Partners, and began his career in corporate and commercial banking at BOK Financial. Learn more at: www.lpfirst.com
INDEPENDENT SPONSORS (CONTINUED)
Tarrus Richardson, Founder and CEO, IMB Partners | trichardson@imbpartners.com
Tarrus Richardson is the founder and CEO of IMB (est. 2010) with 25 years of private equity experience. He has invested over $500M and has led 20+ platform buyouts and add-on acquisitions. Previously, he co-founded ICV Partners ($440M minority-owned PE firm) and held roles at JLL Partners ($2B AUM) and Citibank (formerly Salomon Brothers). Tarrus also founded the Council of Urban Professionals and was founding board chair of All Star Code, a not-for-profit helping boys of color learn to code. Learn more at: www.imbpartners.com
CAPITAL PROVIDERS
Chelsea Celistan, Principal, Avante Capital | chelsea@avantecap.com
Chelsea Celistan is a principal at Avante Capital Partners in New York, responsible for sourcing, underwriting, executing, and managing investments. She joined Avante in 2024 and brings 10 years of middle-market investing experience. Previously, she was a vice president at Providence Equity Partners, focusing on technology, media, and telecom leveraged buyouts. She also held roles at Vista Equity Partners (software) and The Vistria Group (healthcare) and began her career at Citigroup. Learn more at: www.avantecap.com
Caroline Dallas, Director, GEM | cdallas@geminvestments.com
Caroline Dallas is a director in the Investment Research Group at GEM. In this role, Caroline focuses on sourcing new opportunities, directing due diligence and research, and monitoring existing investments. Prior to joining GEM in 2018, she was the assistant vice president of Institutional Equity Sales with FBR Capital Markets, and assistant vice president in BB&T Corporation’s Private Wealth Management Group. Learn more at: www.geminvestments.com
Jeffrey Ennis, Partner, Ocean Avenue Capital Partners | jennis@oceanavenuecapital.com
Jeff Ennis is a founding partner of Ocean Avenue Capital Partners, involved in all aspects of firm operations and portfolio management. Previously, he co-founded Wilshire Associates’ Private Markets Group, growing it to $6 billion AUM with 40+ employees across five global offices. As chief investment officer, he oversaw the group’s global business operations. Jeff brings over 20 years of private equity experience spanning firm operations, investment strategy, and portfolio management. Learn more at: www.oceanavenuecapital.com
Jacques Youssefmir, Partner, Ocean Avenue Capital Partners | jyoussefmir@oceanavenuecapital.com
Jacques Youssefmir is a founding partner and chief compliance officer at Ocean Avenue Capital Partners, focusing on special situations and small company investments. Previously, he was a managing director at Wilshire Associates, leading global co-investment and secondaries and overseeing legal matters for Wilshire Private Markets. Earlier, he served as vice president and general counsel at STM Wireless, a NASDAQ-listed communications firm, and as an associate at Latham & Watkins. Learn more at: www.oceanavenuecapital.com
Melissa McClenaghan Martin, President, M3 Strategic Alliances | melissa@m3strategicalliances.com
Melissa advises firms on the creation of business development, thought leadership, and women’s initiative opportunities that increase firms’ visibility, reach, and revenue. Melissa has 20 years of experience working with financial services firms, and her thought leadership and consulting span various sectors including private equity, hedge funds, venture capital, and real estate. Learn more at: www.m3strategicalliances.com
