Issuu

Fall 2026

Sanjay Gupta Forge Select

Maximizing the Lifecycle of Your Investment POWER IN THE PLUS

withum.com/ma

CONTENTS

CONTRIBUTORS 6

YOU HAVE TO FIGHT FOR YOUR RIGHT TO PARTY By Paul Marino

PAUL MARINO

Head, Corporate and M&A Practice Groups - Sadis & Goldberg

DREW BRANTLEY

Managing Director - Frisch Capital Partners

By Drew Brantley

FRANK BUKOWSKI

Senior Director - Institutional Capital Services - JTC Group

MARK WOODWARD

Strategic Advisor - Gryphon Strategies

TRAVIS TAYLOR Partner - Altius Reach Managing Partner - Altius Reach MANUEL KOSER

Partner - Altius Reach

THE TOP 3 DEAL KILLERS FOR INDEPENDENT SPONSOR TRANSACTIONS—AND HOW TO PREVENT THEM

FEATURED BUSINESS LEADER Sanjay Gupta

VENTURE CAPITAL IN 2026 FLEXIBILITY IS KEY IN UNCERTAIN TIMES

By Frank Bukowski

ARE THERE SKELETONS IN YOUR DEAL’S CLOSETS

By Mark Woodward

MAROJE GUERTL

Partner - Altius Reach

LINO MALDONADO

VP, Relationship Manager - City National Bank

JOHN MCQUISTON

SVP, Commercial Deposits Program Manager - City National Bank

JEREMY JACOBOWITZ

Founder - Grange Park Partners

STEVEN E. BRADY

Partner, Market Leader, Transaction Advisory - Withum

THE WHISTLE AND THE WATERFALL

By Travis Taylor, Manuel Koser & Maroje Guertl

TRANSFORM YOUR ESCROW STRATEGY WHY CHOOSE CITY NATIONAL BANK FOR RETENTION AND HOLDING ESCROW SERVICES By Lino Maldonado & John McQuiston

THE MISSING FUNCTION IN MIDDLE MARKET M&A: WHY EXECUTION NEEDS AN OWNER By Jeremy Jacobowitz

CREATING VALUE AFTER THE DEAL: THE INDEPENDENT SPONSOR'S PLAYBOOK By Steven E. Brady

ABOUT SADIS

WELCOME

The firm maintains a diverse, businessoriented practice focused on investment funds, litigation, corporate, real estate, regulatory and compliance, tax and ERISA. Drawing on the experience and depth of our lawyers in these distinct areas, we can leverage each lawyer’s industryspecific knowledge to help our clients succeed. This collaborative approach brings to the table a collective insight that contributes to sensible, efficient resolutions, and allows us to remain attentive to the cost and time sensitivities that may be involved. Sadis’s clients include domestic and international entities, financial institutions, hedge funds, private equity funds, venture capital funds, buyout funds, commodity pools, and numerous businesses operating in various industries around the world.

YOU HAVE TO FIGHT FOR YOUR RIGHT TO PARTY BY PAUL MARINO SADIS & GOLDBERG

he Beastie Boys song, You Have to Fight For Your Right to Party (on the album, Licensed to Ill—

released in December of 1986)1 was a big

MTV hit in December of 1986 (carrying forward to 1987) and it was one of the first “cross-over” songs (Hip Hop and Rock) of its era (preceded by RunDMC’s cover of

PAGE 6

THE EARNOUT®

PAGE 7

the classic Aerosmith song “Walk This Way”—Run

finding compelling deals, at the right valuation and

DMC—which by the way, is on the album “Raising

structure, and then getting them through diligence,

Hell”—considered one of the greatest hip hop/rap

not simply finding money.

albums of all time2--also, I’d be remiss if I didn’t say that Darryl Matthews McDaniels (a/k/a DMC) is a

IS need to differentiate themselves with proprietary

huge Beatles fan and a great New Yorker).

sourcing (or a strong angle as the preferred buyer and not just paying the highest price in an auction),

But I digress, you’re here to read about lower

a demonstrated track record, strong operating

middle market private investment and deals. Right

capabilities and a well-defined investment thesis—

now, the deal market in the middle and lower

not just access to a good deal.

middle market (“MLMM”) is as healthy as I’ve seen over the last few years.

Fourth, the model is becoming more institutional— and economics are getting more sophisticated.

First, deals are coming in at or near valuations

Independent sponsors are increasingly behaving

that prove out (i.e., not insane valuations). And

like permanent investment platforms rather than

while deals generally have different structures;

one-off dealmakers. More sponsors are developing

however, most deals, especially in the MLMM,

repeatable sourcing engines, operating capabilities

contain earnouts and rollover equity (actually so

and relationships with a stable group of capital

much so that I posit that the norm is earnout and

providers. At the same time, investors are paying

rollover equity).

much

closer

fees,

management

Second, Independent Sponsors (“IS”) have filled

attention

fees,

carry,

transaction

waterfalls,

sponsor

commitments and alignment.

the MLMM (especially in the 10-25MM enterprise value-vertical) and continue to see growth around

The performance data is also strengthening the

the edges of that deal space. As a result of this

case for the model: a 2026 IPC/SBIA study of 846

focus in the MLMM, I posit PE Firms will (and are)

independent sponsor transactions found a median

actively soliciting IS and their platforms and while

gross IRR of 23.8% versus 18.5% for matched

this may decrease the enterprise value of deals

buyouts, with median MOIC of 2.1x.

(increased pricing efficiency) it will decrease DPI What

and create greater interest in the space.4

this

means

for

sponsors:

The

best

independent sponsors are increasingly building Third, capital is available—but the bar for getting

institutional-quality platforms while preserving the

it is higher. IS have more potential capital sources

flexibility and entrepreneurial advantages of the

than ever: family offices, institutional investors,

model.5

private credit, SBICs and other alternative capital. But investors are becoming much more selective

Lastly, operational value creation is becoming the

about sponsor quality, deal quality, structure and

differentiator. The old independent-sponsor pitch

downside protection. The constraint increasingly is

was largely “we can find proprietary deals.” That's

PAGE 8

THE EARNOUT®

still important, but increasingly the question from

and 2.9%.

capital providers is: “What are you going to do with

2. H1 2026 M&A Landscape:

the company after you buy it?”

• Expanded the M&A overview to highlight how H1 2026 experienced a resurgence in deal

Sponsors are putting greater emphasis on pro-

value (up nearly 50% year-over-year globally/

fessionalizing management, improving financial

US), driven by megadeals, AI infrastructure

reporting, implementing systems, driving organic

investments,

growth, executing add-ons and building scalable

valuation expectations.

operating infrastructure. That's particularly import-

and

narrowed

buyer-seller

3. Independent Sponsors in Middle & Lower

ant as leverage remains more expensive and multi-

Middle Markets:

ple expansion can no longer be relied upon as the

• Expanded the section under “So What’cha Want?” to explicitly address the rapid rise of

primary source of returns.

IS in the lower-middle and middle markets. Interestingly, the new IPC/SBIA study found that

Highlighted how family offices, High-Net-

more than 75% of independent-sponsor portfolio

Worth Individuals (“HNWIs”), and institutional

companies

capital

experienced

multiple

expansion,

providers

are

partnering

with

while the median portfolio company increased

independent sponsors due to their specialized

its workforce by 17%—suggesting that operating

sector expertise, deal-by-deal flexibility, and

performance and business building are increasingly

proprietary deal flow.

central to the model.6

A BEASTIE BOYS-THEMED REVIEW OF THE FIRST HALF OF 2026

Intergalactic Dealmaking: No Sleep Till Closing The first half of 2026 demonstrated that the U.S. economy remains resilient despite elevated macro uncertainty. Economic growth moved along at

Here are some tidbits from the first half of 2026

a steady clip, with Q1 2026 real GDP expanding

(“H1”).

at an annualized rate of 2.1% before moderating slightly to 1.5% in Q2. Inflation exhibited temporary

Editorial Review & Recommendations

volatility: headline CPI started the year at 2.4%,

1. Macroeconomic Grounding (CPI & GDP): • GDP: Added Q1 2026 GDP growth (2.1% annualized) and Q2 2026 advance estimate (1.5% annualized) to substantiate the “resilient yet moderating” narrative.

briefly spiked to 4.2% in May amid energy market fluctuations, and eased back down to 3.5% by June, while core CPI remained anchored between 2.6% and 2.9%.

• CPI: Added specific first-half inflation trends—

The Federal Reserve maintained a cautious stance

headline CPI starting at 2.4% in early 2026,

as CPI and PCE data continued toward their longer-

peaking at 4.2% in May due to volatile energy

term targets, even as services inflation remained

pressures, before easing to 3.5% in June, with

sticky. JOLTS data reflected a labor market that was

core CPI remaining anchored between 2.6%

normalizing, with job openings easing from post-

THE EARNOUT®

PAGE 9

pandemic highs and quits remaining subdued.

as valuation expectations between buyers and

Meanwhile,

Optimism

sellers finally converged. Quality assets attracted

improved modestly as business owners expressed

competitive auction processes, particularly across

greater confidence in future conditions, even as

business services, software, healthcare, industrial

hiring challenges and financing costs persisted.

technology, and defense. Private equity sponsors

NFIB

Small

Business

increasingly

relied

continuation

vehicles,

For middle-market private equity, the first half

structured equity, and creative financing solutions

resembled a Beastie Boys album: equal parts

to bridge valuation gaps and push transactions

energy, improvisation, and resilience. Sponsors

across the finish line.

remained

disciplined

valuation,

lenders

became increasingly competitive, and private

So What’cha Want?

credit continued to fill financing gaps. Independent

Independent sponsors continued their rapid

sponsors

appear

particularly well positioned given their flexibility,

Private credit remained one of the biggest winners

sector specialization, and ability to partner with an

of H1. Direct lenders offered execution certainty,

expanding universe of capital providers.

flexible structures, and competitive leverage, allowing sponsors to complete transactions that

Like the Beastie Boys themselves, the market spent

traditional syndicated markets often could not

the first half of the year adapting, experimenting,

support.

and proving that creativity often outperforms

Fight for Your Right... to Deploy Capital Despite slower fundraising across the broader private equity landscape, dry powder remained substantial. Competition for premium assets stayed intense, reinforcing the importance of proprietary

convention. There may have been occasional ‘Sabotage,’ but by midyear the market had largely found its rhythm—and dealmakers everywhere were once again saying there would be ‘No Sleep Till Closing.’

sourcing and operational value creation.

Looking Ahead If inflation continues to moderate and financing markets remain open, the second half of 2026 1

Licensed to Ill is of course a parody of James Bond’s 007 moniker granting him a “licensed to kill.”

https://en.wikipedia.org/wiki/Raising_Hell_(album)

See, Institute for Private Capital, Independent Sponsors: Investment Characteristics and Performance (https://uncipc.

com/publication/independent-sponsors/) 4

Definition of DPI: https://corporatefinanceinstitute.com/resources/financial-modeling/distributed-to-paid-in-capital/

https://sbia.org/2026/06/22/independent-sponsor-deals-deliver-higher-returns/?utm_source

PAUL MARINO Partner

Sadis & Goldberg pmarino@sadis.com

Paul Marino is a partner in the Financial Services and Corporate Groups. Paul focuses his practice in matters concerning financial services, corporate law and corporate finance. Paul provides counsel in the areas of private equity funds and mergers and acquisitions for private equity firms and public and private companies and private equity fund and hedge fund formation.

THE EARNOUT®

PAGE 11

The Top 3 Deal Killers for Independent Sponsor Transactions—and How to Prevent Them BY DREW BRANTLEY FRISCH CAPITAL

ndependent sponsor transactions are hard to

independent sponsor may have already invested

get closed.

hundreds of hours building a relationship with the seller, negotiating the LOI, developing an

Unlike a traditional private equity fund with

investment thesis and engaging potential capital

committed capital, independent sponsors typically

partners. Yet some of the biggest threats to closing

have to manage two transactions simultaneously:

don't emerge until after the LOI is signed.

acquiring the company and raising the capital to fund the acquisition. That makes certainty,

Three issues, in particular, can derail an otherwise

credibility and momentum especially important.

attractive independent sponsor transaction. The good news is that none of these problems has to

By the time a deal enters due diligence, the

PAGE 12

be a complete surprise. Independent sponsors can

THE EARNOUT®

PAGE 13

take steps early in the process to identify—and in some cases prevent—the issues that most often put deals at risk.

HOW INDEPENDENT SPONSORS CAN PREVENT IT?

Before formal third-party background checks

DEAL KILLER #1: THE BACKGROUND CHECK FINDS A PROBLEM

begin, independent sponsors should have a direct

Background checks often happen relatively late

This doesn't need to feel like an interrogation.

in the transaction process, but they can uncover

Position it as part of preparing the company for

issues that fundamentally change how investors

institutional diligence.

conversation with the seller and key management team members about what is likely to appear.

and lenders view a deal. Explain that lenders and equity investors will A bankruptcy, criminal conviction, jail time,

conduct background checks and that seemingly

litigation, regulatory issue or other undisclosed

old or irrelevant issues may appear. Ask specifically

problems involving the seller or CEO can quickly

about bankruptcies, criminal matters, regulatory

create concern among capital providers.

problems, material litigation, liens and other events that could require explanation.

The problem isn't always the event itself. Then help the seller get ahead of the issue. Often, the bigger issue is the surprise. If something exists, develop the explanation and There is an enormous difference between an

supporting documentation before capital providers

independent sponsor telling a lender or equity

discover it themselves.

investor early in the process, "The CEO had a personal bankruptcy twelve years ago following

The objective isn't to hide a problem. It is exactly

the failure of an unrelated business, and here is

the opposite: eliminate the surprise.

the context," and having the lender discover that bankruptcy independently three weeks before

Independent sponsors are often able to navigate

closing.

imperfect histories. Undisclosed histories are much harder to navigate.

The first situation can potentially be explained and underwritten. The second creates a credibility

The second thing Independent Sponsors can do is

problem.

to go ahead and conduct a background check on the seller and key management members? While

Capital providers immediately begin asking a

most Independent Sponsors are sensitive to out of

second question: What else don't we know?

pocket expenses, this can have one of the biggest

PAGE 14

THE EARNOUT®

return on investments for dollars spent, and usually you can do a background check fairly economically.

Even

worse,

the

seller

may

interpret

the

restructuring as the buyer attempting to renegotiate

DEAL KILLER #2: THE COMPANY STOPS PERFORMING DURING DUE DILIGENCE

the deal—when in reality the underlying economics have changed.

One of the most frustrating ways for a deal to

HOW INDEPENDENT SPONSORS CAN PREVENT IT?

fall apart is also one of the most preventable: the

Independent sponsors should treat protecting

company simply doesn't perform while everyone is

company performance as a specific workstream

working on the deal.

during diligence.

Due diligence is extraordinarily distracting for a

At the beginning of diligence, establish one person—

founder-owned business.

whether at the company, the independent sponsor or an outside advisor—as the primary coordinator

The same CEO who normally spends Monday

for diligence requests.

morning reviewing the sales pipeline may suddenly be answering 37 diligence questions. The CFO who

Instead of allowing lenders, accountants, attorneys,

normally manages receivables and margins may be

insurance advisors and investors to continuously

pulling historical reports for the Quality of Earnings

interrupt

provider. Management meetings get postponed.

consolidate requests and create an organized

Sales follow-ups slow down. Hiring decisions get

process for responding to them.

the

CEO

and

management

team,

delayed. More importantly, establish a simple weekly Meanwhile, lenders and investors are watching the

operating dashboard for the diligence period.

company's trailing financial performance.

Track the handful of metrics that will tell you whether the business is drifting: revenue, gross margin,

If a company entered the process generating

backlog, bookings, pipeline, cash collections and,

$5 million of EBITDA but the latest numbers

most importantly, EBITDA versus the forecast used

suggest EBITDA is trending toward $4 million, the

to price the transaction.

transaction may no longer support the original purchase price or capital structure.

Then have a short weekly conversation with management focused on one question, Is running

That can trigger a lower valuation, more seller

the business still getting the attention it deserves?

financing, additional equity, less leverage, an

The sponsor's job during diligence isn't just to

earnout or some combination of all four.

diligence the company. It is to help make sure there

THE EARNOUT®

PAGE 15

is still a healthy company to buy when diligence is

But whatever the reason, once the QofE provider

finished.

establishes a materially different earnings number, the capital providers are likely to underwrite the

DEAL KILLER #3: THE QUALITY OF EARNINGS DOESN'T MATCH THE FINANCIALS PRESENTED

transaction using the more conservative figure.

HOW INDEPENDENT SPONSORS CAN PREVENT IT?

Few things can change an acquisition faster than a

Don't wait for the formal QofE to find out whether

Quality of Earnings report.

the company's EBITDA is real.

A seller may believe the business generates $4

Before launching third-party diligence, independent

million of EBITDA. The CIM may show $4 million.

sponsors should conduct their own "mini-QofE"

The independent sponsor may have negotiated the

with the seller and CFO.

purchase price based on $4 million. Start with reported EBITDA and work through every Then the QofE comes back at $3.3 million. Suddenly,

adjustment and add-back individually.

nearly every part of the transaction can change. For each one, ask: At an 8x purchase multiple, a $700,000 EBITDA difference potentially represents $5.6 million of

• Is it truly non-recurring?

enterprise value. It can also affect leverage, debt-

• Is there documentation supporting it?

service coverage, equity requirements and investor

• Would an institutional lender accept it?

returns.

• Will the expense disappear after closing? • Is there a corresponding expense that will need

The discrepancy doesn't necessarily mean anyone

to be added after closing?

intentionally misrepresented the numbers. Then reconcile the earnings calculation against the Founder-owned

businesses

frequently

have

financial statements that were never designed

company's general ledger, tax returns and monthly financial statements.

for an institutional transaction. Expenses may be misclassified. Revenue recognition may be

For transactions with messy accounting, it may

inconsistent. Personal expenses may run through

even make sense to bring in an accounting advisor

the business. Proposed add-backs may not survive

before the formal QofE begins.

scrutiny. One-time revenue may have been treated as recurring. Cash and accrual accounting can

Finding a $500,000 discrepancy before signing an

create additional complications.

LOI is uncomfortable.

PAGE 16

THE EARNOUT®

PAGE 17

Finding it after spending months and significant

The most effective independent sponsors therefore

money on a transaction is far worse.

approach diligence differently. They don't simply ask, "What do we need to diligence?"

Today, AI tools available make it easier than ever to do a quick analysis of the financials to get directionally comfortable that the numbers are accurate.

They ask: "What could we discover 30 days from now that would make our capital partners reconsider this

THE BEST DEAL PROTECTION HAPPENS BEFORE THE PROBLEM APPEARS

transaction—and can we find it today?"

Independent sponsor deals rarely die because

continues performing. Pressure-test EBITDA before

a single spreadsheet was missing from the data

an outside accounting firm does it for you.

Ask the uncomfortable background questions early. Protect management's time so the company

room. They die when new information changes the perceived risk or economics of the transaction.

You can't eliminate every problem that will arise during an acquisition.

background

issue

changes

confidence

management. A decline in performance changes

But you can eliminate a surprising number of

the company's value. A QofE adjustment changes

surprises.

the earnings investors and lenders are willing to finance.

And in an independent sponsor transaction, sometimes that is what gets the deal across the

The common denominator is surprise or change.

finish line.

DREW BRANTLEY Managing Director

Frisch Capital Partners drew@frischcapital.com 706-227-4144

Drew is a serial entrepreneur having started 5 businesses, sold a few and still owns some. He knows what it’s like to be in your shoes. He sees the Independent Sponsor model as the method executives and industry experts can take to own and run already established businesses. He now dedicates his career to helping individuals buy companies, find greater success and live life on their own terms.

PAGE 18

THE EARNOUT®

Independent Sponsor Capital For 28 years, Frisch Capital Partners has specialized in raising equity and debt for value-added Independent Sponsor transactions.

Over $1.5 Billion of Capital Raised EBITDA $3 Million -$40 Million

frischcapital.com | 706-227-4144 Securities offered through GT Securities, Inc., member FINRA, SIPC.

FEATURED BUSINESS LEADER

SANJAY GUPTA PAGE 20

THE EARNOUT®

SANJAY GUPTA

PARTNER AND HEAD OF FORGE SELECT

Independent Sponsors: An Inefficient Market Opportunity

Sanjay Gupta of Forge Select was recently inter-

Institutional interest was another focus of the con-

viewed by Paul Marino of Sadis & Goldberg to

versation. Based on his observations, Gupta be-

discuss the independent sponsor market and the

lieves more institutional investors are recognizing

opportunities it presents for investors. Drawing

the return potential of independent sponsor trans-

on more than two decades in private equity and

actions. He expects additional institutional capital

alternative investments, Gupta sees independent

to enter the market as investors continue searching

sponsors as operating in an area where market

for alpha, while bringing greater discipline around

inefficiencies can still create opportunities for out-

establishing a realistic path to an eventual exit.

sized returns. The conversation also addressed risk. The indepenGupta’s interest in the market reflects his longstand-

dent sponsor market is less extensively mapped

ing focus on inefficient markets. While traditional

than traditional private equity, creating information

private equity has become increasingly competi-

challenges for investors. Investors must also consid-

tive and assets more efficiently priced, he believes

er whether smaller sponsor organizations have the

independent sponsors can still uncover attractive

experience and stability necessary to remain togeth-

opportunities. Sponsors may source companies

er an++d manage an investment over several years.

through off-market processes, become the first institutional investors in businesses, and find signif-

With private equity markets becoming increas-

icant opportunities for operational improvement.

ingly competitive, Gupta believes independent sponsors continue to offer opportunities through

The discussion also explored the alignment be-

market inefficiency, operational improvement,

tween independent sponsors and their investors.

off-market sourcing, and alignment of interests.

Unlike traditional private equity firms support-

Selecting the right sponsor and transaction re-

ed by management fees from committed funds,

mains critical, but the segment continues to

independent sponsors must generate success-

offer the potential for differentiated returns.

ful investments to attract capital for future deals and sustain their organizations. That structure

For an in-depth exploration of Sanjay Gupta’s in-

can create strong motivation to find opportuni-

sights on the independent sponsor market, please

ties, improve businesses, and generate returns.

read the full interview at SADIS.com.

THE EARNOUT®

PAGE 21

Venture Capital in 2026: Flexibility is Key in Uncertain Times BY FRANK BUKOWSKI JTC GROUP

redictions for the VC market were all

new heights. According to PitchBook,1 2021 US VC

over the map after a tumultuous 2025,

investment "topped $300 billion for the first time,

with geopolitical instability and economic

settling at $329.8 billion and nearly doubling 2020’s

volatility contributing to extended hold times and

total of $166.6 billion—the previous record."

drawn-out fundraising periods. Unfortunately, that growth was short-lived, and by The US venture capital market did more than just

2022, EY was ready to declare2 that "the venture

show resilience during the pandemic: it reached

capital bull market has run its course. "The next few

PAGE 22

THE EARNOUT®

PAGE 23

years saw less investment and fewer exits, putting

question for the next several years is what happens

pressure on fund managers' bottom lines as longer

to the many for whom it produces nothing at all.”

hold times delayed repayment and fundraising periods stretched longer than expected.

NVCA describes a bifurcated fundraising market of haves and have-nots: “The top ten funds alone

While 2025 provided some encouraging data, those

raised a combined $22 billion, 32.9 percent of all

bright spots were concentrated among larger

VC capital, up 2.5 times from the 13 percent they

funds and key sectors like AI. Smaller VC funds

claimed in 2021. That left roughly $44.9 billion to be

and those invested in industries affected by tariffs

divided among the remaining 575 funds.”

have been especially vulnerable to macroeconomic trends. Understanding these trends and their long-

For managers of smaller funds, closing a second

term ripple effects can help us understand what it

vehicle has become challenging, especially in a

will take for VC managers to weather an uncertain

sector where past performance is harder to prove

environment in an already chaotic 2026.

amid long hold times. Per NVCA, "fewer firms are entering the market, while others are exiting due to fundraising challenges. For emerging managers,

LESSONS FROM THE 2025 VENTURE CAPITAL MARKET

the bar has risen significantly.”

The first quarter of 2025 was the strongest for VC investment since Q1 2022. That sounds promising, 3

but OpenAI's massive $40 billion funding round4 skewed the numbers, which would have been less impressive otherwise.

PREDICTIONS FOR THE VENTURE CAPITAL MARKET IN 2026

As one might expect after a year that saw such geopolitical

The rest of the year told a similar story. Data from PitchBook5 shows AI and Machine Learning deals represented 65.4% of all deal value in 2025. Average deal value and deal volume were way up overall, but these numbers rely heavily on a small number of massive AI deals.

volatility,

there

were

plenty

conflicting predictions for where the VC market may be headed in 2026. KPMG provided one of the more positive outlooks,7 stating that, "for VC investors, the combination of sustained capital deployment and healthier exit conditions suggests a more constructive

Exits were similarly lopsided, according to a report from the National Venture Capital Association:

“ten IPOs account for 76 percent of IPO value. Ten M&A deals account for nearly half of M&A value.

and balanced venture capital environment." J.P. Morgan8 was more cautious, citing risk factors such as the possibility the "AI boom disappoints" or that "IPO activity fails to improve."

487 mega-deals account for 67 percent of all deal

PitchBook’s 2026 VC outlook9 gave "a cautiously

value. The system produces magnificent outcomes

optimistic outlook for 2026, expecting tempered

for a few and functional outcomes for some. The

growth in IPOs, relatively improved market liquidity

PAGE 24

THE EARNOUT®

PAGE 25

through secondaries, and continued growth in the

shutdown weighed on 2025’s new listings, Q1 2026

number of completed deals, especially at the early

contended with fresh policy and geopolitical risks.”

stages." However, "Liquidity will remain the primary Overall data from Q1 remained strong – at first

challenge for the VC market in 2026."

glance. According to NVCA,15 “The quarter’s $267.2 "Companies are re-imagining their portfolios as

billion in deal value exceeded every full-year total

innovation reshapes industries and capital awaits

except for those of 2021 and 2025, and exit value

deployment. Those who think strategically and act

hit $347.3 billion, the highest quarter on record.”

boldly will set the course for what comes next," says

However, a closer look reveals lopsided data:

Stephan Feldgoise, Global Head of M&A, Goldman

“without the five largest deals and exits, those

Sachs.10

figures fall by 73.2% and 86.6%, respectively.”

MACROECONOMIC CONCERNS CREATING UNCERTAINTY FOR VC MANAGERS

CB Insights16 notes Q1 was “the highest quarterly total on record. But that headline figure was driven largely by a single transaction: OpenAI’s $122B raise accounted for 43% of all funding during the quarter.”

The big story of 2025 was tariffs. As Heather Gates and Angelica Tsakiridis of Deloitte11 put it, "Just as venture capital (VC) was beginning to stretch its legs after a long market cooldown, tariffs blew in like a sandstorm.” They suggest that if the tariff landscape "remains unpredictable, we may see collateral effects such as reduced investor confidence." Fundraising will be harder, as will evaluation for fund managers. “More uncertainty means fewer investments.”

seeing positive results. CB Insights notes, “Hard tech markets in areas like defense, space, and quantum” are seeing momentum. And KPMG17 says,

“Persistent

geopolitical

tensions

have

accelerated interest in autonomous defense, space infrastructure, and dual-use technologies, with

governments

multiple

jurisdictions

increasing support for domestic defense and space ecosystems.”

In the first half of 2026, the discussion of tariffs has been replaced by the conflict in Iran and other geopolitical concerns. Inflation12 remains the major political issue of 2026, with consumer sentiment hitting record lows in some surveys.13

Unfortunately,

the

latest

geopolitical

and

macroeconomic developments mean this data is hardly reliable for predicting the rest of the year. If the impact of tariffs in 2025 was to cause uncertainty in the VC market, then given what’s

“The onset of the war in Iran has added another obstacle to opening the IPO window,” says PitchBook.14 “After tariffs and a government

PAGE 26

AI continues to dominate, but isn’t the only sector

happening now, even more uncertainty can be expected for the rest of 2026. The solution, then, is to plan for the possibility that

THE EARNOUT®

markets improve along with the possibility that they

these outside factors, but they can do something

stall. To do that, managers need to focus on pain

about how they control costs.

points that could be coming, not just those felt now.

HOW LONGER HOLD TIMES AND FUNDRAISING PERIODS PUT PRESSURE ON VC MANAGERS

CREATING BREATHING ROOM FOR VC FUNDS THROUGH GREATER EFFICIENCY AND FASTER SCALING As a fund administrator, JTC works with VC funds to

We've mentioned before how the IPO landscape has

transition smoothly through the different stages of

slowed in recent years, with companies waiting for

their lifecycles, from formation to wind-down and

the right moment to go public. This means longer

everything in between. Our clients can sidestep the

hold times for VC funds. Not only can that hurt a

costly and burdensome hiring process and reduce

fund's bottom line as operating expenses eat into

the size of their full-time staff by outsourcing key

margins, but it also means funds are forced to exit

functions such as investor servicing, fund accounting

upon IPO rather than retain a percentage of shares.

and reporting, regulatory support, cash & treasury

services, and more. Liquidity is a key issue across the board. Without exits, managers can't redeploy, which leads to

Our 96% staff retention rate21 means clients don't

missed opportunities. "There simply often isn’t the

have to deal with the high turnover of the financial

same rate of capital being returned for allocators to

services industry, and with the right technology,

redeploy," says KPMG.19

operations can be more efficient. Increased efficiency helps see funds through long hold periods, reducing

"When exits stall, the entire cycle slows," says

costs as they wait for portfolio company exits.

NVCA CEO Bobby Franklin in Forbes.20 "When they aren't able to have exits by way of a merger and

JTC helps VC managers mitigate operational, staffing,

acquisition or an IPO, then it's very difficult for them

and compliance risks while boosting efficiency to

to go back and raise another fund and support more

allow managers to focus on what they do best.

entrepreneurs. "This is where hold times collide with

By offering sector-specific expertise, advanced

fundraising periods, which have also been extended.

technology solutions, and a proactive, client-focused

The median time to close a new fund was around 10

approach that ensures both accuracy and timely

months in 2022; circa 16 months.

communication, JTC's operational solutions bring value and peace of mind to fund managers and their

Macroeconomic and sociopolitical concerns are

investors.

delaying both exits and fundraising, with residual effects for investors, managers, and companies

The next year may prove to be a big one for venture

seeking capital. VC managers can't do anything about

capital, or it may be another year of waiting and

THE EARNOUT®

PAGE 27

seeing. Big players and AI may continue to dominate,

Learn more about JTC's venture capital solutions.22

or niche markets could prove to be the smart play

JTC does not provide legal, tax or investment or other

for intelligent investors. No matter what happens,

professional advice and, while it may review and

JTC's clients know they can adjust with efficient,

report upon such advice received, JTC does not give,

technology-driven administration built specifically

accept or endorse and should not be understood to

for their businesses.

be giving, accepting or endorsing such advice.

https://files.pitchbook.com/website/files/pdf/Q4_2021_PitchBook_NVCA_Venture_Monitor_First_Look.pdf

https://www.ey.com/en_us/insights/growth/the-venture-capital-bull-market-has-run-its-course-but-reports-of-its-

demise-are-premature 3

https://www.ey.com/en_us/insights/growth/venture-capital-investment-trends

https://www.cnbc.com/2025/03/31/openai-closes-40-billion-in-funding-the-largest-private-fundraise-in-history-

softbank-chatgpt.html 5

https://pitchbook.com/news/reports/q4-2025-global-vc-first-look

https://nvca.org/wp-content/uploads/2026/04/NVCA-2026-Yearbook-4.9.26.pdf

https://kpmg.com/xx/en/media/press-releases/2025/10/global-vc-investment-rises-in-q3-25.html

https://am.jpmorgan.com/content/dam/jpm-am-aem/americas/us/en/institutional/insights/portfolio-insights/ltcma-

full-report.pdf 9

https://pitchbook.com/news/reports/2026-us-venture-capital-outlook

https://www.goldmansachs.com/what-we-do/investment-banking/insights/articles/2026-ma-outlook

https://nvca.org/wp-content/uploads/2025/07/Q2-2025-PitchBook-NVCA-Venture-Monitor-19728.pdf

https://tradingeconomics.com/united-states/inflation-cpi

https://tradingeconomics.com/united-states/consumer-confidence

https://nvca.org/wp-content/uploads/2026/04/Q1-2026-PitchBook-NVCA-Venture-Monitor.pdf

https://nvca.org/pitchbook-nvca-venture-monitor/

https://www.cbinsights.com/research/report/venture-trends-q1-2026/

https://kpmg.com/xx/en/what-we-do/industries/private-enterprise/venture-pulse.html

https://www.jtcgroup.com/insights/a-wait-and-see-environment-bodes-well-for-the-us-ipo-market/

https://assets.kpmg.com/content/dam/kpmg/kz/pdf/2025/03/Q4-2024-Venture-Pulse.pdf

https://www.forbes.com/sites/rhettbuttle/2025/09/30/nvca-ceo-bobby-franklin-on-how-venture-capital-drives-

innovation 21

https://www.jtcgroup.com/insights/the-critical-role-of-staff-retention-in-fund-administration/

https://www.jtcgroup.com/services/funds/venture-capital/

FRANK BUKOWSKI

Senior Director - Institutional Capital Services JTC Group

JTC Plc (“JTC”) is a global provider of fund, corporate and private client services. JTC administers $550 billion in assets and employs more than 2,500 people worldwide. JTC currently administers 72 Opportunity funds with an approximate AUA of $10 Billion. A leader in specialty financial administration, JTC serves markets characterized by high administrative complexity, elevated transaction security needs and challenging compliance requirements.

PAGE 28

THE EARNOUT®

Your Fund Administration Partner : Trusted Expertise, Global Reach As a leading global fund administrator with c.$500bn in assets under administration, we deliver seamless end-to-end support at every stage of the fund lifecycle. With deep experience and a global reach in Private Equity, Private Credit, Real Estate and Venture Capital, we go far beyond traditional fund administration. Let our expertise unlock the full potential of your investments. Find out more at www.jtcgroup.com

Global Platform

Listed on

FTSE 250

c.$500 Billion USD Group AUA

ISAE 3402 Certified

c. 2,500 People

Are there Skeletons in your Deal’s Closets? BY MARK WOODWARD GRYPHON STRATEGIES

INTRODUCTION

a comprehensive diligence can provide valuable

Inadequate due diligence can cost companies and

background of key executives, their leadership

investors millions of dollars in expenses, as well

styles, potential role suitability, and organizational

as reputational damage, organizational turmoil,

fit to minimize the risk to the investment.

insight on issues such as the character and

and potential legal consequences. The most fundamental objective of the diligence process is

While firms typically conduct due diligence, it may

to avoid investing in a company engaged in illegal,

only be a cursory review to check the diligence

unethical, or inappropriate business practices.

box, and therefore insufficient to adequately

Equally critical, though not always viewed as such,

assess the investment. Such lapses in the due

PAGE 30

THE EARNOUT®

PAGE 31

diligence process can leave the firm exposed to

of recent job seekers surveyed admitted

reputational and operational risks, as we’ll show in

embellishing or misrepresenting themselves

the examples in this article. Each poor investment

during the application process. The most

decision avoided or inadequate executive not hired

common practices were exaggerating expertise

mitigates reputational risk and saves money in

(61%), inflating the scope of previous roles (59%),

both tangible and intangible ways, making it critical

fabricating stories during interviews (47%), and

to follow due diligence best practices.

changing employment dates to conceal gaps (45%).

THREAT LANDSCAPE

° Although dated, a June 2017 SHRM article,

Questions that often arise in discussions with

Verify Degrees and Protect the Company

clients are along the lines of: How often do you find

from Resume Fraud, reported that 85%

concerning information? What types of derogatory

of approximately 4,000 respondents to

information are you able to find? Are the issues

HireRight’s employment-screening survey

raised disqualifying?

had uncovered a lie or misrepresentation on a candidate’s résumé or job application— up from 66% five years earlier.

Before addressing the above and our own findings, it’s useful to consider the following data for overall

Moreover, this conduct is not limited to the private

context:

sector. When I was detailed to the Office of Security • A May 2026 report by the Association of

and Counterintelligence of a U.S. Government

Certified Fraud Examiners (ACFE), Occupational

agency, the head of counterintelligence, in speaking

Fraud 2026: A Report to the Nations, concluded

to the need to conduct periodic reinvestigations

that “occupational fraud is likely the largest and

of personnel offered the somewhat Orwellian

most costly form of financial crime in the world.”

observation, “wherever we look, we find something.”

The report further noted that ACFE estimates “organizations lose five percent of revenue to

Turning to our own due diligence experience,

fraud each year.”

we regularly (in approximately 20-25% of cases)

• According to a 2024 RAND Corporation study, “…

uncover material red flags – via both public records

more than 25 percent of workers in the active

and through conversations with independently

workforce have at least one prior conviction…

developed human sources – even on subjects

Forty-six percent of 35-year-old men looking for

who have previously been PE and VC-backed by

work in 2018 had a conviction for a nontraffic

large institutions. The problems associated with

crime as an adult. That proportion varies only

high profile examples like WeWork, Theranos and

slightly by race and ethnicity.”

FTX were easily discoverable – as is evident in

• A March 2026 Society for Human Resource

the volume of firsthand sources who have been

Management (SHRM) article, Three Ways L&D

“discovered” after each of those became headline

Can Overcome Skillfishing, reported that 93%

failures.

PAGE 32

THE EARNOUT®

Types of issues we regularly find include:

also more willing to violate securities laws.

• Bankruptcies

Conducting an extensive due diligence investigation

• Unethical Conduct

can be challenging as well as time-consuming and

• DUIs/DWIs

requires a range of skill sets. It often requires a

• Domestic Violence

broad domestic and foreign intelligence network

• Other Illegal Conduct

and specialized licenses or in-person research to

• Biographical and Professional Anomalies

legally access the necessary databases or otherwise

• Inappropriate Workplace Relationships

obtain critical public records during the open source

• Regulatory Violations

research phase. The information available through open source research is limited, particularly in foreign

UNCOVERING POTENTIAL ISSUES

environments. Critical to the success of the primary source diligence is demonstrated expertise in

Given the potentially dire consequences, investors

identifying and interviewing unique and authoritative

should implement a robust due diligence process to

sources. The bottom line is that acquiring, analyzing,

better protect themselves when making a substantial

and corroborating both open and primary source

investment in a company and evaluating its C-level

information is vital to an in-depth diligence effort.

hires. A robust process, in our experience, would include both open source research, collected from a

In this respect, the same ACFE report cited previously

wide array of publicly available sources, and primary

emphasized that “84% of fraudsters displayed at least

source information, direct or firsthand perspectives

one behavioral red flag.” So, potentially discoverable

from authoritative human sources.

indicators.

Primary

source

collection

senior

Moreover, as the author of the 2025 KPMG study,

executives, in particular, is a powerful tool to

Global Profiles of the Fraudster noted, “The typical

help identify potential issues and evaluate salient

fraudster is often someone you wouldn’t suspect —

attributes,

highly respected, long-serving, and seemingly loyal.

leadership

focused

and

decision-making

styles, as well as the propensity to engage in risky

This highlights the importance of vigilance…”

behaviors. A study titled, Executives' “Off-the-job” Behavior, Corporate Culture, and Financial Reporting

However, the June 2017 SHRM article mentioned

Risk published originally in The Journal of Financial

above also reported that only half of employers

Economics in March 2013 (and updated in a fall

verified candidates’ educational credentials, even

2020 article published in Contemporary Accounting

though a background-screening executive described

Research), found that CEOs and CFOs with prior

education fraud as the most common category of

legal infractions are more likely to perpetrate

discrepancy his firm encountered. And in our own

fraud. Further, this same study found evidence that

experience, many clients forego rigorous diligence

executives who are willing to violate other rules are

efforts for an array of reasons spanning from cost,

THE EARNOUT®

PAGE 33

which compared to consequences is minimal, to

as more time passes without a conviction.” This

concerns about jeopardizing a deal by seeming

is information that can be uncovered through a

to “not trust” the principals. Given the frequency

robust diligence process.

with which our team uncovers areas of concern, we tend to subscribe to and recommend the old intelligence axiom of “trust but verify.”

NOTEWORTHY CASES

To bring many of the preceding points fully home, I’d like to offer a few examples from cases we’ve

ADJUDICATING

worked over the years (names or subjects and

To some extent, whether or not a discovered

clients omitted, naturally). In many of these cases

incident is disqualifying is a judgment call the client

the subject of the diligence had disclosed their

will need to make and is influenced significantly by

version of events and our clients had “gotten

the client’s risk tolerance, the specifics of the deal,

comfortable with it.” In the below cases, open

the criticality of the affected individual’s role, as

source research and interviews with primary

well as the nature of the incident (severity, one time

sources provided evidence to refute the subject’s

or a pattern). It is also a judgment based on what

version of events.:

we in the Intelligence Community would call the “whole person” concept: a single incident does not

• In conducting a routine open source diligence of

define an individual in his or her entirety. That said,

a business owner, we uncovered a seven-figure

many incidents we have uncovered over the years

IRS lien. When asked by the client why he had

have in many cases resulted in the client scrapping

not disclosed this during any of their meetings,

the deal, replacing the individual, or implementing

the subject replied, “I didn’t think you’d find it.”

other measures [for example, placing a sponsor on

• When asked by a client, who would have

the board].

been

potential

co-investor

(the

other

investor had already invested millions with no RAND Corporation in the aforementioned article

diligence), to conduct open and primary source

makes a similar point that “a nuanced picture of a

diligence, we uncovered fraudulent products,

job applicant’s risk of reoffending by considering

regulatory violations, inappropriate workplace

multiple factors holistically: How long has the

relationships, and unethical conduct.

person gone without a new conviction? How old

• In evaluating a startup company premised on

is the person? How many convictions does the

a novel technology, we uncovered through

person have? Weighed together, the answers

interviews that executives were knowingly

to those questions are more predictive of risk of

misleading investors regarding the status and

reoffending than the type of crime that the person

progress of the technology’s development.

committed…The single most reliable factor in

• Source interviews disclosed wildly inappropriate

predicting future behavior is the amount of time

conduct on the part of a portco C-level executive

that has passed since a person’s last conviction; a

candidate at a corporate retreat.

person’s likelihood of reoffending declines rapidly

PAGE 34

• Open source research revealed an arrest record

THE EARNOUT®

for a violent domestic assault and subsequent

For more information on Gryphon’s investigative due

restraining order linked to a founder of a

diligence practice, contact:

promising startup.

Mark Woodward, Senior Advisor. mwoodward@

• Open source research uncovered a DUI arrest video. The subject had disclosed the offense,

gryphon-strategies.com Matt Hays, Partner, mhays@gryphon-strategies.com

but the circumstances surrounding the arrest were vastly different than they had conveyed to

Mark Woodward supports Gryphon Strategies, a

the client.

global business intelligence and investigations firm, as a Strategic Advisor.

CONCLUSION

Mark’s career spans 35 years encompassing criminal

Given these potentially dire consequences, we

justice research with the U.S. Department of Justice

believe investors should implement a robust due

and the U.S. Sentencing Commission and clandestine

diligence process to better protect themselves

HUMINT and counterterrorist operations in numerous

when making a substantial investment in a

high-risk environments worldwide.

company and evaluating critical hires. A robust

Subsequently, Mark built and led Business Intelligence

process would include both open source research,

Advisor’s HUMINT- and OSINT-focused Intelligence

collected from a wide array of publicly available

business line, applying the tradecraft he had learned

sources, and primary source information, direct or

throughout his prior career to complex intelligence

firsthand perspectives from authoritative human

collection operations for the firm’s hedge fund, private

sources. Lastly, costs need not be a prohibitive

equity, and other investor clients.

factor as the scope and extent of the diligence can be tailored to the situation or investment.

Mark Woodward Strategic Advisor Gryphon Strategies

Mark Woodward supports Gryphon as a Senior Advisor while continuing to serve as BIA’s Chief Operating Officer. Mark is focused on supporting Gryphon’s clients and new team throughout the integration of BIA’s Investment Intelligence group into Gryphon.

THE EARNOUT®

PAGE 35

The Whistle and the Waterfall Sports have become an institutional asset class. The key underwriting question is no longer whether the audience will grow, but where the economics accrue, and what today's price already assumes. BY TRAVIS TAYLOR, MANUEL KOSER & MAROJE GUERTL ALTIUS REACH

KEY TAKEAWAYS

• Sports has matured into an institutional asset class, supported by scarce assets, growing audiences, long-term media revenues and increasing participation from private capital. • Revenue architecture shapes the investment thesis. Different leagues and assets generate revenue in very different ways, creating distinct growth levers and levels of exposure to media, local markets, sponsorship, premiumization and other commercial opportunities. • Where growth accrues determines investor returns. The distribution of economics between leagues, teams and players influences whether returns are driven primarily by growth in the wider sport or by selecting and developing the right asset. • Valuation discipline is becoming increasingly important. Franchise valuations have grown faster than underlying revenues in several major leagues, increasing the importance of operational growth and sustainable value creation in future returns. • The opportunity extends well beyond franchise ownership. Ticketing, hospitality, media, infrastructure, technology, youth sports, women's sports and emerging formats are broadening the investable sports ecosystem.

PAGE 36

THE EARNOUT®

PAGE 37

n 19 July in New Jersey, Spain beat

sports franchises, with roughly $15 billion under

Argentina 1-0 in extra time to win the

management and stakes across more than 30

FIFA World Cup. In the United States

teams, for $1.4 billion in initial consideration, plus

alone, roughly 62.8 million people watched, 38.9

up to $550 million in performance-linked equity.

million on Fox in English, another 23.9 million on

The deal closed in May once league approvals were

Telemundo and Peacock in Spanish. Fox's audience

secured.

peaked at nearly 52 million, up 132% from the 2022 The transaction illustrates how far institutional

final.

participation

has

developed,

with

capital

For investors, however, the significance of those

increasingly flowing into both sports assets and

numbers lies not simply in the fact that more

the platforms built to invest in them. Sport is now

Americans are watching soccer. It is that live sport

an institutional asset class. Investor attention is

continues to demonstrate an increasingly scarce

shifting toward identifying which assets are best

ability to aggregate large audiences at the same

positioned to capture that growth.

moment, an attribute that broadcasters, streaming platforms, sponsors and advertisers are willing to

Institutional access has caught up with asset-class

pay for.

performance. The Ross-Arctos Sports Franchise Index, which tracks aggregate franchise value across

The tournament capped an extraordinary twelve

the NFL, NBA, MLB and NHL, has compounded

months of live sport. In February, Super Bowl LX

at roughly 13% per annum over the last twenty

drew 125.6 million viewers across NBC, Peacock,

years, against approximately 8% for the S&P 500,

and Telemundo, the second-largest audience

with meaningfully lower volatility. Scarce supply,

in American television history, peaking at 137.8

decade-long contracted media revenue, globalizing

million during the second quarter. Two days later,

fandom and a widening monetization surface have

NBC rolled that audience into Milan Cortina, which

produced an unusually attractive historical return

averaged 23.5 million viewers and became the

profile.

most-watched Winter Olympics since Sochi 2014. That historical performance also needs to be The temptation is to draw a straight line from

interpreted carefully. Franchise valuations are

audience growth to investment returns. That is

private-market marks rather than continuously

precisely where investors need to be careful.

traded prices, and a meaningful share of past appreciation has come from expanding valuation

The institutionalization of sport is now visible not

multiples rather than underlying revenue growth.

only in franchise transactions but also in investment

The history is compelling; it should not be mistaken

platforms built around the asset class.

for a forecast.

On 5

February, KKR agreed to acquire Arctos Partners, the largest institutional investor in professional

PAGE 38

The access story caught up more recently. The

THE EARNOUT®

NBA formalized institutional ownership rules in

because it is the one that most often survives into

2019-2020; the NFL, the last holdout, voted 31-1 in

an investment committee memo in disguised form.

August 2024 to permit approved firms to hold up to 10% of a club, subject to a 75% owner approval

The Dallas Cowboys have not won a Super Bowl

threshold.

in nearly thirty years. They are worth roughly $13 billion, more than twice the Kansas City Chiefs,

Every major North American league now permits

who have won three championships since 2020

some form of institutional participation, and

and are valued at around $6.2 billion. The Cowboys

the deal flow has followed: Arctos into the Bills,

generate $1.23 billion of revenue and $620 million

Chargers and Browns; Ares into the Dolphins; Sixth

of operating income, both comfortably the highest

Street into the Patriots and, in the largest sale in

in the league. Value tracks the business, not the

American professional sports history, the $6.1

trophy cabinet.

billion acquisition of the Boston Celtics' owner. The NBA is a partial exception. The Warriors' four same

titles and the Lakers' brand are genuinely bound

conviction. Apollo, Ares, Arctos and a growing

up in their valuations, which is instructive in itself.

cohort of specialists are in market with sports-

Where a league's economics allow individual clubs

dedicated vehicles, alongside newer entrants

to differentiate commercially, sporting success

targeting women's sport and blue-chip minority

amplifies

stakes.

models, the financial impact of sporting success is

The

fundraising

pipeline

reflects

the

monetization.

centralized

more limited. Greater institutional acceptance confirms that the opportunity set is investable, while asset selection

For investors, the distinction matters because

determines where attractive risk-adjusted returns

sports assets offer fewer conventional private-

may exist.

equity levers than most operating businesses.

WINNING IS NOT THE THESIS

Start with the most common misconception,

Roster expenditure is structurally difficult to reduce; it is capped, taxed, or competitively bid, depending on the league, and aggressive cost-cutting can

THE EARNOUT®

PAGE 39

undermine the product itself. Value creation is

revenue, national media accounts for about 25%.

therefore primarily a revenue story rather than a

A 162-game season builds deep local engagement,

cost-reduction story.

with seating and suites contributing around a third of revenue. Still, broadcaster bankruptcies have

That leaves investors with a relatively concentrated

destabilized the league's regional sports network

value-creation

model, and centralization of local rights remains an

playbook.

The

principal

revenue levers are audience expansion, media

open and consequential question.

monetization, premium hospitality, sponsorship, internationalization, venue development, product

The NBA sits between the two, around 40% national

innovation, and data and digital engagement. Few

revenue on a $12 billion base, blending an 82-game

assets can pull all of them, and most established

local footprint with global reach built on individual

franchises have already pulled several. The

player recognition. Premiumization has been

diligence question is which levers remain genuinely

unusually effective: premium seats contribute

available to this asset, and how much runway each

roughly half of ticket revenue while occupying

one has left. An underwriting case that assumes

under 20% of seats.

significant margin expansion needs to identify the revenue or structural mechanism that enables it.

These

Otherwise, the model is describing an aspiration

investment exposure. An NFL owner has substantial

rather than a value-creation plan.

exposure to the economics of nationally negotiated

differences

determine

the

underlying

media. An MLB owner has considerably greater

REVENUE ARCHITECTURE DEFINES THE VALUECREATION PLAYBOOK

sensitivity to local market strength, attendance, and local media. An NBA franchise combines shared league economics with greater scope

Which revenue streams an asset owns determines which growth levers it can pull, and leagues differ far more than casual observers assume.

62% is national revenue, overwhelmingly media. National rights have risen from about $4 billion annually in 2013 to more than $10 billion under running

through

2033.

monetize premium experiences. The strongest assets pull several levers at once.

The NFL generates roughly $22 billion, of which

agreements

for individual teams to build global brands and

Game

scarcity, seventeen regular-season fixtures, plus near-universal live viewing makes the inventory extraordinarily valuable to broadcasters and advertisers.

Liberty Media grew Formula 1's revenue from $1.8 billion in 2018 to $3.9 billion in 2025, at an 11% CAGR, by expanding its audience. Drive to Survive recruited a younger, broader fanbase, and new US races in Miami and Las Vegas converted that attention into rights fees, sponsorship, and promotional income, with the fanbase growing 63% to 827 million. CVC's investment in the Gujarat Titans followed a different mechanism: a timing call ahead of a step-

MLB is almost the inverse. On roughly $13 billion of

PAGE 40

change in IPL media rights, which are shared across

THE EARNOUT®

PAGE 41

franchises and represent a substantial proportion

into equal growth for every asset within it. The

of team revenue.

distribution of value between the league, the team, and the players determines whether investor

City Football Group, backed by Silver Lake,

returns depend primarily on the growth of the

represents another model altogether: a multi-club

wider competition or on the performance and

network used in part as a talent-development and

development of a specific asset.

player-monetisation platform. The NFL shares national revenue equally across Three assets, three entirely different mechanisms.

media, league sponsorship, and merchandise

For investors, “sports exposure” is therefore too

licensing, and enforces a hard salary cap. Growth

broad a category to support an underwriting case.

is therefore broadly socialized. Dispersion among

The investable thesis lies within the asset's revenue

franchises is compressed, and an investor is

architecture and the specific mechanisms by which

essentially buying league beta.

growth converts into cash flow.

WHERE DOES THE GROWTH ACCRUE?

The IPL operates similarly in important respects. A large share of media rights and league sponsorships is distributed across franchises, alongside a salary

Growth in sport does not automatically translate

PAGE 42

cap on team spending and shared upside.

THE EARNOUT®

The English Premier League could hardly be more

The bull case is coherent. PE firms, sovereign funds

different. Broadcast revenue is roughly 40% of

and family offices have permanently expanded

club income, and only half of that pool is shared

the buyer pool for a fixed asset supply, setting a

equally; 25% is allocated based on television

structural price floor. Live sport is the last reliable

appearances, and 25% on merit. Clubs capture

aggregator of simultaneous mass attention in a

most of the commercial, media, and matchday

fragmented media market, and 2026 has provided

upside;

wage

abundant evidence. Global audience expansion

inflation with limited cost controls; and relegation

opens genuinely new markets, and stadium

creates material financial downside. Dispersion is

perimeters

enormous, making asset selection central to the

billion-dollar entertainment districts. Long-dated

investment case.

contracted revenue gives cash flow visibility few

competition

for

talent

drives

are

becoming

year-round,

multi-

private assets can match. For investors, the practical question is simple: are you underwriting the growth of the sport or league,

The bear case is equally coherent and turns not

or the success of an individual team? The answer

on whether audiences will grow, but on how much

depends primarily on two things: which revenue

of that growth reaches a minority of institutional

drivers dominate the asset's economics, and how

investors. Media rights growth may normalize as

the league's sharing arrangements redistribute

legacy networks defend profitability and streaming

them. Where national media dominates and is

platforms impose budget discipline. Institutional

broadly shared, as in the NFL and IPL, returns

investors capped at passive minority stakes have

are more closely tied to league-level growth.

limited ability to drive operational change. Trophy-

Where clubs retain more commercial, media and

asset dynamics inject sentiment-driven variance

matchday income and sporting performance has

into comparable-based valuation. And escalating

direct financial consequences, as in the Premier

price tags reduce the pool of exit buyers: the

League, asset selection carries substantially more

universe of buyers capable of absorbing a $10

weight.

billion franchise inside a standard fund liquidation window is small and does not obviously grow at

THE MULTIPLE PROBLEM

13% per annum.

The uncomfortable observation, and one every allocator should sit with: valuation growth has

The implication is not that one of these cases can

structurally outpaced revenue growth. Over the

be resolved at the asset-class level. Investors need

past decade, NFL revenue roughly doubled while

to build their own conviction before investing,

average franchise valuations tripled. Average

based on the specific revenue mechanisms, sharing

multiples now sit around 13.5x revenue in the

economics and value-creation opportunities of

NBA and 10.3x in the NFL, against roughly 4.9x for

the asset in front of them rather than inheriting

the world's thirty most valuable non-MLS soccer

conviction from the category's historical return

clubs. A meaningful share of historic returns has

record. Future returns will depend far more on

therefore been driven by multiple expansion.

operational growth and navigating media transition

THE EARNOUT®

PAGE 43

than on continued multiple expansion. That is a

private-equity underwriting.

different skill set from the one that generated the last decade's numbers.

Youth sports, women's sports, and emerging

BEYOND FRANCHISES: WHERE THE BROADER OPPORTUNITY SITS

As competition for franchise equity intensifies, investors are moving outward. Many of the most actionable private-capital opportunities in sport sit elsewhere in the ecosystem. The broader opportunity spans ticketing, premium hospitality, tournament rights, stadium and training-ground assets, sports streaming and regional broadcasting, betting, fantasy, performance analytics, club management software, representation, NIL platforms, youth sports and emerging leagues. For middle-market private equity, these businesses can provide exposure to many of the same structural tailwinds, including growing participation, rising media value, increasing commercialization and expanding fan engagement, while retaining a more conventional set of operational value-creation

formats such as padel and flag football provide earlier-stage opportunities where institutional capital has yet to reset valuations to the same extent

established

franchises.

These

segments also carry greater execution risk, placing more importance on market structure, customer behavior, and the durability of monetization models during diligence. The broader sports ecosystem, therefore, creates opportunities across a much wider range of deal sizes,

ownership

structures,

and

investment

strategies. The same analytical framework still applies: understand the revenue model, identify the growth mechanism, determine where value accrues, and test what the entry valuation already assumes.

FIVE QUESTIONS FOR THE INVESTMENT COMMITTEE

Whatever the asset, the same five questions do most of the work:

levers. 1. What are the primary revenue streams? A ticketing platform, for example, may benefit from

Strong assets show diversified, recurring in-

premiumization and rising event demand while

come rather than dependence on a single con-

offering identifiable opportunities around pricing,

tract cycle.

technology and go-to-market effectiveness. Sports

2. What growth levers exist within each stream,

software can capture the professionalization of

and how much runway remains? Look for

clubs, leagues and youth organizations through

multiple levers with demonstrated monetiza-

recurring SaaS economics. Premium hospitality

tion, not one lever already largely pulled.

businesses can monetize the same scarcity and

3. How much of that growth can investors ac-

willingness-to-pay dynamics that drive venue

tually capture? Map the waterfall between

revenues, while remaining familiar to traditional

league, team, and players before modeling any-

PAGE 44

THE EARNOUT®

thing.

Diligence needs to trace the chain from audience

4. Is value creation driven by exposure to the

growth to revenue, from revenue to asset-level

sport, or by picking the right asset? The an-

economics, and from asset-level economics to the

swer should match the risk-return profile you

return available to the security being purchased.

have underwritten.

The discipline lies in understanding where the

5. What assumptions are embedded in today's

value ultimately settles.

price? Separate revenue growth from operational improvement from multiple expansion.

Altius Reach is a specialist commercial due diligence and

If the third is doing most of the work, you are

value-creation advisory firm working with US and European

underwriting sentiment.

private equity funds across technology, professional services, financial services, consumer, healthcare, and

As sports matures as an asset class, that discipline

industrials sectors.

becomes increasingly important. Scarcity, growing

For more information, contact:

audiences,

Travis Taylor, Managing Partner

and

institutional

capital

provide

powerful structural support. Attractive investment

travis@altiusreach.com

returns will depend on identifying the businesses

Manuel Koser, Partner:

capable

manuel@altiusreach.com

converting

those

tailwinds

into

sustainable cash flows while entering at a valuation that preserves sufficient upside.

Maroje Guertl: maroje@altiusreach.com

Altius Reach focuses on commercial due diligence and value creation for private equity funds and their portfolio companies. We combine consulting rigour, investment expertise, and proprietary analytical tools to deliver structured, evidence-led insight across the deal cycle.

TRAVIS TAYLOR

MANUEL KOSER

MAROJE GUERTL

Altius Reach

Managing Partner

Partner

THE EARNOUT®

Partner

PAGE 45

Transform Your Escrow Strategy: Why Choose City National Bank for Retention and Holding Escrow Services? BY LINO MALDONADO & JOHN MCQUISTON CITY NATIONAL BANK

THE GOLD STANDARD IN ESCROW EXCELLENCE: 40+ YEARS OF PROVEN EXPERTISE

another financial institution, you may not be aware

In the fast-paced world of commercial transactions,

Bank of Canada, stands as a premier provider of

construction projects, and business acquisitions,

specialized escrow and paying agent services,

the integrity of your escrow arrangements can

leveraging more than 40 years of institutional

make or break a deal. If you're currently managing

expertise

your retention and holding escrow services with

and reliable escrow services. Whether you're a

PAGE 46

of what City National Bank brings to the table. City National Bank, a subsidiary of the Royal

THE EARNOUT®

deliver

security,

sophistication,

THE EARNOUT®

PAGE 47

contractor managing millions in project retention,

buyer—to protect the interests of each within the

a business owner navigating a complex acquisition,

authority of the Escrow Instructions. The funds or

or a transaction participant seeking maximum

assets are held by the escrow agent until it receives

protection and efficiency, City National Bank

the appropriate instructions or until predetermined

offers a comprehensive solution that transcends

contractual obligations have been fulfilled. Once

traditional escrow services.

all parties have signed the escrow documents and the terms and conditions of the instructions have

This

isn't

about

marginal

improvements

incremental benefits. This is about fundamentally transforming

how

your

critical

been satisfied, the business transfer escrow can be completed with confidence.

transaction

funds are managed by protecting your interests,

Diverse Applications Across Industries

generating interest earnings, and ensuring your

City National Bank's escrow services extend across

deals close smoothly.

an impressive range of business scenarios:

UNDERSTANDING RETENTION AND HOLDING ESCROW: MORE THAN JUST A HOLDING ACCOUNT

• Construction Retention Escrow: Managing progress payments under construction contracts • Merger & Acquisitions and Business Acquisition Escrow: Managing funds in

Before exploring why City National Bank stands

business acquisitions with clear release

apart, it's essential to understand what retention

instructions, until defined milestones or

and holding escrow truly means and why it matters

timelines are satisfied

for your business.

• Intellectual Property Escrow: Managing payments while intellectual property assets are

The Essential Purpose

being transferred

A retention and holding escrow account serves as a

• Commercial Real Estate Escrow: Facilitating

critical function: it provides a neutral and secure

real estate transactions tied to business

space to hold funds or property documents until

purposes

specific obligations are fulfilled in a transaction.

• Settlement and Litigation Escrow: Managing

In the case of large transactions, holding escrow

settlement distributions for litigation matters

services help protect both parties from fraud, theft,

with appropriate legal documentation

and deception—risks that are far too significant to

• Capital Raise Escrow: Handling heavily

ignore in today's business environment.

regulated fundraising and investor subscription funds

An escrow agent essentially serves as a neutral middleman in the context of an escrow agreement.

• Private Party Transactions: Supporting escrow arrangements between individuals

When City National Bank acts as your Escrow Agent, we act on behalf of both parties—seller and

PAGE 48

This comprehensive capacity demonstrates that

THE EARNOUT®

City National Bank isn't a narrow specialist. We're

post-closing disputes.

capable of handling virtually any transaction structure your business requires.

THE CRITICAL IMPORTANCE OF PROPERLY STRUCTURED ESCROW

CITY NATIONAL BANK: SPEED, SECURITY, AND SOPHISTICATION What

separates

competitors?

Our

City

National

Bank

comprehensive

from

approach

Why does your choice of escrow organization

combines institutional expertise with operational

matter so profoundly? The answer lies in the

excellence.

real-world consequences of inadequate escrow execution.

• 40+ Years of Experience: We've handled

Why This Matters: Proactive Risk Management Properly

structured

escrow

thousands of escrow transactions across

arrangements

assist parties and allow for proactive measures should disputes arise. Consider the alternative: a transaction with weak execution at the closing stage can undermine an otherwise well-negotiated deal. You might have negotiated favorable terms, conducted thorough due diligence, and secured the best possible price—only to have inadequate escrow management create disputes, delays, or financial losses.

escrow

multiple industries, giving us institutional knowledge that protects your interests • Dedicated Operations Teams: Full-service teams manage every aspect of your escrow, from initial setup through final disbursement • Standardized Documentation: We've streamlined our escrow documentation, reducing negotiations and accelerating your timeline • Paying Agent: We handle disbursement to shareholders and sellers, reducing attorney

City National Bank's approach aims to set up your

Institutional Strength and Expertise

structure

sophisticated,

comprehensive, and enforceable from day one.

Accountability and Incentive Alignment A properly structured escrow incentivizes all parties to fulfill agreed-upon terms. When funds are held

liability and simplifying the process

The Streamlined Process: From Onboarding to Closing City National Bank's organizational workflow ensures efficiency at every stage:

Onboarding Phase:

in escrow, parties are motivated to complete their obligations, making it possible to address situations

• A dedicated agent handles Know-Your-

where a party may not be forthcoming during due

Customer (KYC) requirements seamlessly

diligence. This alignment of incentives creates a

• We request all necessary documentation

more honest transaction environment and reduces

• All parties involved complete a simple

THE EARNOUT®

PAGE 49

information sheet • We review rate information that can be tied to

Making the Transition: Simple, Streamlined, Seamless

the Fed Funds Index, with interest paid to the

Perhaps you're thinking, "This sounds ideal, but

designated party (Tax ID specific)

switching service providers seems complicated." City National Bank has streamlined the transition

Drafting Phase:

process to minimize disruption to your operations.

• City National Bank presents our Standard Escrow Agreement to all parties • Parties are able to request customizations to the Agreement, as needed, for consideration

The process is remarkably simple:

Step 1: You Complete the Opening Information Sheet Simply provide us with the essential information about your escrow needs. Our team guides you

Closing Phase:

through

• We provide reliable and accurate monitoring and disbursement of funds • Written confirmation is delivered to parties when a deposit is received or funds are released • A release of funds form is required before any disbursement • Multiple disbursement methods accommodate your preferences

this

straightforward

process,

asking

clarifying questions to ensure we fully understand your requirements.

Step 2: We Handle the Rest Once we receive your information, City National Bank's professionals take over: • We

prepare

comprehensive

Escrow

Documentation package • We send original Escrow Agreements for all

The Interest-Earning Retention Revolution

• We provide Funds Transfer Order Information

Perhaps the most compelling reason to transition

• We deliver an Escrow Acceptance Agreement

your escrow services to City National Bank is our

• We coordinate with all relevant parties to ensure

innovative

Interest-Earning

Retention

parties

Escrow

Account—a service that fundamentally changes the economics of escrow management.

smooth implementation We've streamlined this process through thousands of transitions. Existing clients move to City National Bank with reduced business disruption while

THE SOLUTION: INTERESTEARNING ESCROW ACCOUNTS

beginning to benefit from our services and, where applicable, interest-earning accounts.

earn interest depending on deal specifics. More

Your Next Step: Transform Your Escrow Strategy

importantly, your agreement may enable you to

The evidence is compelling. City National Bank

take advantage of interest earned.

offers:

City National's escrow deposit accounts may

PAGE 50

THE EARNOUT®

9 40+ years of institutional expertise and proven success with major transactions 9 Financial

returns

through

critical funds.

interest-earning

escrow accounts 9 Expert, responsive service from professionals dedicated to escrow excellence 9 Streamlined

implementation

with

minimal

disruption to your operations 9 Institutional security backed by Royal Bank of Canada 9 Transparent

communication

and

flexible

disbursement options 9 Competitive, transparent fee structure with no hidden surprises 9 Customized solutions for complex transactions and unique needs If your current escrow provider isn't delivering interest-earning

accounts,

table and risking inadequate protection for your

expert

service,

sophisticated transaction management, and a trusted relationship; you're leaving money on the

The transition to City National Bank is straightforward and streamlined. For more information and to discuss your specific escrow needs, contact our dedicated team: Lino Maldonado VP, Relationship Manager City National Bank Phone: (858) 340-9167 Email: Lino.Maldonado@cnb.com John McQuiston SVP, Commercial Deposits Program Manager City National Bank Email: John.McQuiston@cnb.com City National Bank. Speed. Security. Sophistication. City National Bank Member FDIC. City National Bank is a subsidiary of Royal Bank of Canada. City National Bank does business in the state of Florida as CN Bank. ©2026 City National Bank. All Rights Reserved. cnb.com® is a registered trademark of City National Bank. Article is informational purposes only. Individual client situations and results will vary. Fees may apply. Please contact your relationship manager for additional information.

Let City National Bank be your trusted organization in protecting your assets, generating interest earnings, and ensuring your transactions proceed with confidence and efficiency. In business, your choice of escrow agent matters profoundly. Choose the bank that puts your success first.

LINO MALDONADO

JOHN MCQUISTON

VP, Relationship Manager

SVP, Commercial Deposits Program Manager

City National Bank

THE EARNOUT®

PAGE 51

The Missing Function in Middle Market M&A: Why Execution Needs an Owner BYJEREMY JACOBOWITZ GRANGE PARK PARTNERS

n middle market M&A, most participants

More often, it is the process.

understand what drives value. Growth, margins, market positioning, management quality – these

For founder- and family-owned businesses, a sale

are the fundamentals that underpin any transaction.

process is one of the most consequential events

Yet in practice, deals with similar fundamentals

they will ever undertake. It is also one of the least

often produce very different outcomes.

familiar. Unlike large corporations or sponsorbacked companies, these businesses do not have

The reason is rarely the business itself.

PAGE 52

internal M&A teams. They do not have a head of

THE EARNOUT®

PAGE 53

corporate development, a dedicated diligence

Traditionally, sellers attempt to bridge that gap

team, or an internal resource responsible for

through advisors. Investment bankers are engaged

managing a transaction from start to finish.

to position the business and run the marketfacing process, identifying buyers, managing

What they do have is a group of highly capable

outreach, and driving competitive tension. Lawyers

operators, people who know how to run a business,

handle documentation and negotiate legal terms.

but who are now being asked to support a complex,

Accountants

institutional transaction in parallel with their day-

diligence.

validate

financials

and

support

to-day responsibilities. Each of these roles is essential. Each brings deep At the same time, the expectations on the buy-side

expertise and plays a critical part in a successful

have never been higher. Institutional investors

outcome.

are underwriting not only the business, but the process itself, its organization, responsiveness,

But each operates within a defined lane.

and credibility. They expect clean financials, a wellprepared data room, coordinated communication,

What is often missing is a dedicated function

and disciplined execution throughout diligence.

responsible

They expect information to be consistent across

execution of the transaction, the day-to-day work

interactions, timelines to be respected, and issues

required to prepare for, support, and sustain the

to be addressed proactively rather than reactively.

process from the inside.

When those elements are missing, it introduces

In most founder-led businesses, that responsibility

friction. And friction, in M&A, has a cost.

defaults to management. In practice, that typically

for

managing

the

company-side

means the CEO or CFO. The reality, however, is that That cost is rarely immediate or obvious. It shows

supporting a sale process is effectively a full-time

up gradually, in extended timelines, increased

job.

scrutiny, shifting tone in diligence discussions, and ultimately in negotiation leverage. Buyers begin

It requires preparing the business for market,

to focus less on the opportunity and more on

organizing financials and diligence materials,

perceived risk. And when perceived risk increases,

coordinating across multiple advisors, managing

value tends to move in the opposite direction.

a constant and evolving flow of requests, and ensuring that information is consistent and

This dynamic creates a structural gap in the middle

delivered in a timely, credible manner. It requires

market. On one side, you have a business that lacks

thinking several steps ahead, anticipating how

the internal resources to support a transaction

buyers will interpret information, where diligence

at an institutional level. On the other, you have a

will focus, and how issues should be framed and

process that demands precisely those capabilities.

addressed.

PAGE 54

THE EARNOUT®

At the same time, the business still needs to

Importantly, this is not a failure of the advisors

perform.

involved.

Investment

bankers,

lawyers,

and

accountants are all operating within their roles, What makes this particularly challenging is that

and those roles remain critical.

many founders are going through this process for the first, and only, time. They are being asked

It is a missing function.

to operate within a framework that is unfamiliar, while still being fully accountable for running their

That is where an integrated, company-side deal

business and delivering results.

execution team becomes valuable.

The gap is not capability, it is experience and

At Grange Park Partners, we work with founder-

bandwidth.

and family-owned businesses as an extension of their team, focused on helping them navigate and

Without dedicated ownership of that execution,

execute a sale process at an institutional level. We

the process becomes reactive.

function as their internal deal team quarterbacking the process and working alongside investment

Diligence requests are addressed inconsistently.

bankers, lawyers, and accountants, ensuring that

Information is scattered across different sources

the company is prepared for the process and able

rather than centralized and organized. Responses

to support it effectively from start to finish.

are delayed as management balances competing

In many ways, we do for a founder- or family-

priorities. Advisors, each operating independently,

owned business what a Head of M&A does at a

are not always aligned in how information is

public company or a private equity deal team does

presented or communicated.

for one of its portfolio companies going to market. The goal is simple – to bring institutional-grade

The impact is subtle at first, but cumulative. Buyers

M&A execution to businesses that do not have that

begin to lose confidence, not necessarily in the core

capability in-house.

fundamentals of the business, but in the reliability of the information and the predictability of the

Our role begins before a process is launched, where

process. Questions become more detailed. Follow-

the foundation for the entire transaction is set.

ups become more frequent. Areas that could have been resolved efficiently become extended points

Many of the challenges that surface during diligence,

of focus.

disorganized financials, incomplete information, unclear documentation, or inconsistencies in how

In many cases, this is where value leakage occurs,

the business is presented, are not new issues. They

not through a single event, but through a series

are simply being surfaced for the first time under

of small inefficiencies that collectively shift the

pressure. Our role at this stage is to identify and

balance of the process.

address these areas in advance, organizing and

THE EARNOUT®

PAGE 55

structuring the company’s information so it is ready

We are not replacing any advisor. We are enabling

to withstand institutional diligence from the outset.

the entire process to function more effectively.

During my time as a private equity investor, I

This allows the investment banker to focus on

saw these issues repeatedly in live processes.

running the external process, engaging with buyers,

Companies would move forward with the wrong

managing bids, and driving negotiations, while the

investment banker for their size or industry, or

company is fully supported on the internal side.

present strong financial performance on paper without having the underlying data organized in a

Just as importantly, it allows management to

way that could be substantiated through diligence.

remain focused on running the business.

In many cases, these were strong businesses, but the way they were prepared for the process

This point is often overlooked, but critically

created unnecessary friction and impacted how

important.

buyers evaluated the opportunity. Getting this right upfront can materially improve both buyer

Business performance during a sale process

perception and the overall trajectory of the process.

matters. Buyers are not just underwriting historical results, they are evaluating current performance

Preparing a company for an institutional process

and forward trajectory. If management becomes

also extends to assembling the right advisory team.

overly consumed by the mechanics of the

For founders going through a transaction for the

transaction, it can have real implications for how

first time, selecting the right investment banker is

the business performs during the process.

a critical decision. Differences across bankers can significantly influence how the process unfolds.

Having dedicated execution support helps mitigate

We leverage our experience with and relationships

that risk.

across many investment banks to help identify and select the best fit, ensuring our clients are working

From an advisor perspective, this also improves

with an advisor that has relevant deal experience,

how the process functions overall. When the

industry expertise, and buyer relationships for

company is organized and supported internally,

their business.

bankers are better able to maintain momentum and

competitive

tension,

and

the

broader

Once a banker is engaged and a process is

advisor group can operate in a more coordinated

underway, the focus shifts to execution.

environment.

Our role is to serve as the dedicated internal resource working alongside the company and its

The process becomes more efficient not because

advisors, supporting the process from the inside,

any one role changes, but because all of the pieces

ensuring that information is organized, diligence

are working together more effectively.

is managed efficiently, and all parties remain

That combination, preparation, coordination, and

coordinated as the transaction progresses.

dedicated execution, ultimately translates into

PAGE 56

THE EARNOUT®

both greater efficiency and better outcomes.

Because in middle market M&A, more often than not, the difference is not the business.

In today’s market, that matters more than ever. It is how the process is run, and whether it is run Middle market transactions have become more

with the level of discipline, coordination, and focus

complex, with increased scrutiny in diligence,

that an institutional transaction demands.

evolving deal structures, and greater sensitivity to execution risk. Buyers are more selective, and processes are less forgiving.

About the Author Jeremy Jacobowitz is the Founder of Grange Park Partners,

In that environment, execution is not just a

an M&A execution firm that acts as an embedded deal team

supporting element, it is central to how a transaction

for founder- and family-owned businesses going through

is perceived and ultimately valued.

a transaction process. He works alongside management teams and their advisors to support the full lifecycle of

For founder- and family-owned businesses, this is

a transaction, from preparation through diligence and

often a one-time event. There is no opportunity to

closing, ensuring processes are executed efficiently and at

refine the approach in a future process. The stakes

an institutional level.

are high, and the margin for error is smaller than it may appear at the outset.

Prior to founding Grange Park Partners, Jeremy worked in both investment banking and private equity, where he

Having the right advisors remains critical. But ensuring that the company itself is prepared, supported, and able to execute throughout the process is equally important.

was involved in over $1 billion of completed transactions. He brings that experience to help businesses and investors navigate complex M&A processes with greater structure, clarity, and confidence.

JEREMY JACOBOWITZ Founder

Grange Park Partners Jeremy Jacobowitz is the Founder of Grange Park Partners, an M&A execution firm that acts as an embedded deal team for founder- and family-owned businesses going through a transaction process. He works alongside management teams and their advisors to support the full lifecycle of a transaction, from preparation through diligence and closing, ensuring processes are executed efficiently and at an institutional level.

THE EARNOUT®

PAGE 57

Creating Value After The Deal: The Independent Sponsor's Playbook A lifecycle view of the issues that determine if the investment earns its return BY STEVEN E. BRADY WITHUM

PAGE 58

THE EARNOUT®

PAGE 59

very deal raises a myriad of questions and

ask of it.

issues, yet there are consistent themes

BEFORE THE BID: DECIDING WHAT YOU ARE WILLING TO PAY FOR

around: What am I actually buying? What is

the right price and structure for the risk I cannot eliminate? And what must happen after closing for this deal to earn the return we underwrote?

analytical depth. It is the speed at which you can

Those questions carry a particular weight for an independent sponsor. You are underwriting the deal and raising capital for it at once. Diligence is executed before you know whether the transaction will close, and the analysis is not merely for your own conviction — it is the document your capital partners and lenders will use to decide whether to back you. After closing there is no operating partner bench. There is you, a small deal team, and the management group of the business you just bought.

convert an information memorandum into a bid range you can defend — to your own discipline first, then to the capital partners whose money you are asking for. The common error is anchoring on a seller's adjusted EBITDA and a sector multiple without testing whether the earnings profile and balance sheet support it. Two manufacturers with identical EBITDA can carry vastly different working capital intensity, customer concentration, reinvestment needs, and trade policy exposure — differences worth real multiple turns and rarely visible in a broker's book.

The questions also do not arrive one at a time. A working capital assumption made during diligence becomes a purchase price adjustment or a cash flow constraint after closing. An earnout that bridges a valuation gap becomes a tracking obligation your accounting team inherits on day one. A tariff on imported material turns a profitable part into a loss-making one before anyone updates a quote. The deals that disappoint are rarely those where an analysis was wrong, but those where the analysis stopped at the closing table.

A funded buyer can more readily absorb a dead deal as a cost of doing business. An independent sponsor cannot absorb many. Spend modestly early to establish whether the deal deserves a full budget, and structure work so it addresses key issues early and builds to a full scope along successful check points. The goal is not a conclusion but the two or three questions that will decide the deal — surfaced early enough to diligence deliberately rather than discover late, or worse, have your capital partner discover first.

What follows is illustrated by a familiar profile: a founder-owned precision machining business producing engineered components to customer specs for OEMs, with a capable plant floor, deep customer relationships, and reporting that has never been asked the questions a new owner will

PAGE 60

The constraint in a competitive process is rarely

DILIGENCE: CONVERTING UNKNOWNS INTO PRICED RISK

Diligence must confirm the earnings you are underwriting, the working capital the business

THE EARNOUT®

requires, and the exposures that will land on your balance sheet after closing. Sponsors need one

has never performed. • Input costs, capital expenditure, and

thing more: work product credible enough to travel.

structure. Where material originates and

Rigorous third-party diligence protects you from

what duties apply; machine age, deferred

a bad deal and is the credential that persuades

maintenance and the replacement capital the

capital partners to fund a good one.

seller's EBITDA does not reflect; and the tax and environmental positions carrying balance sheet

For an industrial platform, the priorities are

consequences.

consistent: In the machining transaction, this surfaced two • Quality of earnings and cash flow.

issues that mattered to price. Inventory standards

Normalized EBITDA, the validity and

had not been refreshed in years, and restating

sustainability of the seller's adjustments,

cost of sales on a current basis moved gross

working capital through a full cycle rather than

margin, changed adjusted EBITDA and — because

a convenient month-end, and whether your

inventory dominates working capital here — reset

model's free cash flow is achievable.

the peg governing the closing adjustment. A review

• Inventory costing and salability. Two

by age and program status separately showed

questions frequently collapsed into one.

much of the balance related to dormant programs

Costing asks whether inventory is valued

and to finished goods customers never ordered.

correctly — standard versus actual, the age of

Correcting the cost of active inventory refines an

the standards, overhead absorption. Salability

asset that will convert to cash; identifying unsaleable

asks whether it is worth anything at all: how

inventory removes one that never would.

much relates to active programs, and how much is obsolete material carried at full cost

The margin analysis proved equally consequential.

because no one wanted to record the write-

Below the aggregate, much of the parts portfolio

down.

was priced below genuine cost once current

• Customer and program concentration.

absorption was applied, subsidized by a smaller

Dependence on a few OEM programs,

group of profitable parts. The seller did not grasp

the terms governing that work, purchase

the situation as they had not looked at the business

orders versus long-term agreements, and

through this lens. It was simultaneously a diligence

the switching costs created by tooling and

finding and the first item in the value creation

qualification.

plan. Concentration compounded the point: two

• Margin by part, customer, and work center.

programs carried a disproportionate share of

True gross margin below the aggregate —

contribution margin on rolling purchase orders,

which parts and customers earn their keep,

with no pass-through of material cost.

and which are subsidized. Often the largest value-creation lever, and often one the seller

That gap is a live margin variable, not a background

THE EARNOUT®

PAGE 61

condition. Where material is exposed to duties

have been counterproductive, rewarding the seller

and quotes were prepared under a different

for chasing volume at precisely the low-margin

landed cost with no escalation mechanism, the

parts diligence had identified as the problem.

exposure sits with the business — after closing,

Tying consideration to EBITDA aligned the seller

with the buyer. It is a quality of earnings question,

with the actual thesis — margin discipline, mix

because margin earned under one cost regime

improvement, pricing rigor — and because the

poorly predicts margin under another; a valuation

margin analysis existed, the sponsor could explain

question, because a business that can pass through

why rather than merely assert it. But EBITDA is a

input cost movement is worth more than one that

calculated figure and every input is negotiable: cost

cannot; and a value creation question, because

allocations, management fees, capital expenditure,

the remedies belong in a post-close plan with an

inventory reserves, and what happens if an add-

owner. Tariff exposure rarely disqualifies a target,

on changes the earnings base. If a new tariff

but it should be quantified before the bid rather

compresses margin through no fault of the seller,

than absorbed after it.

does the earnout absorb it? Choosing explicitly beats litigating the silence.

STRUCTURE: PRICING THE RISK YOU CANNOT DILIGENCE AWAY

Acquirers get hurt paying the full range at close because the negotiation was framed as a single price rather than a set of mechanisms. Every gap between a buyer's and seller's view of value has a structural answer — staged consideration, seller notes, rollover equity, earnouts, escrows — and the choice determines how much equity you must raise, frequently the binding constraint on whether the deal happens. The inventory findings flowed straight into the closing mechanism: a working capital peg

set on the seller's historical balance

sheet would have resulted in the buyer delivering, at closing, inventory shown to be unsaleable. Adjusting for obsolete items is worth several points of price and far more effective to settle in the agreement than in a dispute. The earnout metric matters more than the mechanism. A revenue-based earnout here would

PAGE 62

Founder-owned businesses frequently involve a seller who is not fully exiting, and for good reasons: customer relationships and plant leadership's knowledge of the operation cannot be transferred through a data room. Rollover equity keeps them invested — but rollover is not a smaller version of the sponsor's stake. Rolled interests are commonly a junior class, subordinated and subject to different rights and economics, and treating the two as equivalent is a common and expensive simplification. Separately, a tax basis step-up produces deductions that flow straight to after-tax cash flow — substantial in an equipment-intensive business, and negotiable, because the buyer's benefit corresponds to a seller cost.

THE FIRST HUNDRED DAYS: CONVERTING A THESIS INTO RESULTS

Improvements priced into the bid need an owner, a timeline, and a measurement method. What

THE EARNOUT®

PAGE 63

derails them most often is not analysis but people: a management team that spends the first ninety days deciding whether to trust the new owner rather than executing for them. The structural facts of a founder-owned deal make this nearly inevitable. Diligence is conducted with the owner, the CFO / controller and perhaps one or two others. The plant manager, engineering lead and staff accountants often learn of the transaction when it is announced — sometimes on the day it closes. Consider it from their side. They have been told the company was sold to a buyer they have never met,

genuine effort or technical compliance.

A growth thesis asks management to do things they have never done There is a further dimension acquirers consistently underestimate. The management team of a founder-owned manufacturer has usually been particularly good at something specific: running a stable operation, holding quality, serving familiar customers, controlling costs within a known envelope. Those are real skills, and the reason the business is worth buying. They are not the skills a growth thesis demands.

following a process from which they were excluded.

A plan calling for repricing asks a sales organization

Their questions are predictable and personal: Is

built on relationship continuity to have deliberately

my job safe? Does this owner understand what I

uncomfortable

actually do? Am I about to be measured against a

Pursuing new end markets requires an engineering

plan I had no part in building? The honest answer to

and quoting function optimized for repeat work to

the second is often no — the buyer's understanding

develop capability in qualification and new-program

is ninety days old and assembled from documents.

launch. Add-on acquisitions ask plant leadership

commercial

conversations.

that has never integrated anything to absorb Now consider what the plan requires of those

another company's people, systems and quality

same people. The margin analysis is an interesting

standards while holding delivery performance.

spreadsheet until the plant manager tells you

Monthly lender reporting asks a controller who has

which parts run on the constrained machine, which

closed the books on a comfortable timetable to

anchor a relationship carrying other profitable

close them fast and with commentary.

work, and which the shop has quietly lost money on for years because nobody wanted to raise the price.

Each is a genuine change in what the job requires.

The inventory work is executed by the controller,

Handled poorly, the result is a team that appears to

the cost accountant and the materials manager

resist the plan when what is actually happening is

who decides what cannot be sold. The repricing

that it does not yet know how to execute it — and

conversation with an OEM — including tariff pass-

is unwilling to say so to an owner still evaluating

through, rarely welcome — will be led by someone

it. That silence is the expensive part. The first the

whose relationship with that buyer predates yours

sponsor learns of it is a missed milestone with no

by a decade. These people are not implementers

explanation.

of your plan. They hold information it needs to be correct, and they decide whether it is executed with

PAGE 64

The remedy is to involve the team in designing

THE EARNOUT®

the solutions, not merely in receiving them. There is a difference between telling a plant manager that thirty parts will be repriced and asking which thirty, in what order, with which customers, and what must be true operationally for it to stick. The second produces a better plan, because the constraint knowledge lives on the floor, and a different level of commitment, because people defend what they helped build. It also surfaces capability gaps safely: invited to describe what a faster close would require, a controller's honest answer about systems or staffing arrives as a resource conversation rather than a failure. And it demands honesty about capacity — asking a team to run the business and deliver the plan at once, with no added resources, is how both get done badly.

LIVING WITH THE DEAL: REPORTING AND THE OBLIGATIONS YOU NOW OWN

The final stage requires an opening balance sheet that survives audit, a defensible view of goodwill, and reporting that satisfies lenders on their schedule rather than yours. In the machining deal, the allocation under ASC 805 established fair value for equipment, inventory, customer relationships, and backlog. Because assumptions about program durability, margin structure and inventory salability had already been developed in diligence, the allocation matched the deal thesis rather than telling a separate story. An equipment appraisal contradicting your maintenance capital assumption is a question an auditor will ask, and one coherent answer beats two defensible ones.

Three practices consistently separate transitions that build momentum from those that lose a

The inventory step-up is worth modeling in

quarter:

advance: relieving it as the goods sell depresses

• Meet the operating team in the first week, in person, on their floor. A machining business is understood by walking it, and credibility earned early is difficult to earn later. • Ask before you tell. The people running the operation have usually known for years which parts are underpriced, which inventory will never move, and which customer terms have not kept pace with cost. • Build the plan with the team, then assign owners inside the business. Each improvement needs a name from the operating organization, a measurable definition, and a review rhythm. Ownership by the sponsor alone is the surest way to ensure an initiative is discussed monthly and advanced never.

gross margin in the first periods after closing. It is mechanical — but unmodeled, it lands as an apparent margin miss in exactly the quarters when a new owner is establishing credibility. A well-designed earnout creates a reporting obligation on day one, and it is the acquired company's finance team — not the sponsor — that will carry it. Deciding who tracks it, on what basis and with what support is part of designing the structure.

WHAT INDEPENDENT SPONSORS SHOULD EXPECT FROM THEIR ADVISERS As

independent

sponsor

manages

the

expectations of the seller, seller’s management,

THE EARNOUT®

PAGE 65

and capital providers, it is critical to assemble a solid

• Reporting that reflects the deal. Purchase

team of advisors: M&A attorney, risk management

accounting and earnout tracking should tell

team, quality of earnings and other diligence

your auditors and capital partners the story you

advisors. Across these workstreams, make sure

told when raising equity.

there is connection between the analyses: The Bottom Line Diligence,

Deals are not won at the closing table. They are

the valuation model, and the purchase price

won by knowing what you are buying before you

allocation should describe the same business.

commit, by structuring residual uncertainty so

• Consistency

assumptions.

the outcome you underwrote is the one the seller

observation becomes useful when translated

works toward, and by treating the period after

into a price adjustment, a term or a workstream

close with the same rigor as the period before it

with an owner, or an action plan for the value

— including the part that appears in no model:

creation phase.

earning the trust of the people who will execute the

• Findings

expressed

decisions.

• Work product that travels. Your diligence has a second audience — a lender’s credit committee

plan, and equipping them to do work they have not done before.

and an equity capital provider’s investment None of that comes from a single analysis. It

team. • Proportion and sequencing. Early spend should

comes from analyses that connect, and from

be decision-useful; later spend committed once

advisers who carry what they learned in diligence

the deal clears its real risks.

through structuring, integration and the reporting

• Continuity through close. Those who identified the opportunities should be available to explain

that follows — continuity of understanding at the moments a decision turns.

them to a management team seeing them for the first time.

STEVEN E. BRADY

Partner, Market Leader, Transaction Advisory Withum

Steve is a Partner and Market Leader for Withum’s Transaction Advisory practice. He is a licensed certified public accountant in the state of Illinois and specializes in mergers & acquisitions and transaction advisory, advising clients to realize value from middle-market transactions across multiple sectors. Steve has extensive expertise in buy-side and sell-side due diligence, merger integration and other advisory services for mergers and acquisitions, debt offerings, carve-outs and other transactions. Steve has been a Transaction Advisory Practice leader in global and national firms for over 16 years, served as a chief financial officer of a middle-market diversified mechanical contractor and specialty manufacturer and a start-up medical device company, and audit partner for a global firm. Steve previously led a wide variety of cross-border and domestic projects for private equity firms and their portfolio companies, family offices, and strategic acquirers including closely-held middle-market companies and global organizations, investment banks, mezzanine lenders and financial institutions.

PAGE 66

THE EARNOUT®

The Earnout Presents

INDEPENDENT SPONSOR SYMPOSIUM THURSDAY JANUARY 28TH, 2027

RITZ-CARLTON - SOUTH BEACH 1 LINCOLN RD, MIAMI BEACH, FL 33139

We are pleased to be kicking off the year with our 3rd annual Independent Sponsor Symposium focused on you. Matching qualified independent sponsors and capital providers in Miami, Florida. This exclusive 1 day event focuses on high level networking opportunities between capital providers and independent sponsors via one-on-one meetings. Event Format 12 speed networking meetings (20 minute sessions) Social networking cocktails Curated dinners upon request Additional connecting and an attendee participant book