The interview below is part of a new series from McGuireWoods that features interviews with impressive independent sponsors as part of our ongoing commitment to the independent sponsor community. To recommend an independent sponsor for a future interview, email Jon Finger at [email protected].
Q: Why did you decide to become an independent sponsor?
Haran Narulla: I always had a dream of running my own private equity firm, and one has to start somewhere. I had experience helping build a different firm to one of size, scale and institutionality. I was able to leverage that experience to realize my dream of setting up and running my own firm.
It has been amazingly fulfilling to get the firm established; to complete some investments that fit our backgrounds, skill set and expertise; and to put together a team that is capable of evaluating and executing potential investments that are right down the fairway for us. Like any entrepreneurial endeavor, it’s had its ups and downs, but we have been unbelievably fortunate to work with partners who have been extremely supportive of us over the years.
Q: How long have you been operating as an independent sponsor and how long did it take you to get your first deal closed?
HN: We have been operating for three and a half years now. It took us about 20 months to complete our first investment.
Q: What are some of the most impactful reasons you think the independent sponsor model has grown so robustly and what changes do you envision in the future?
HN: In today’s market environment, most assets are priced extremely richly. What that means is that capital providers who are looking for opportunities to make above-market returns have to be more creative in how they source potential investments and how they execute on them to create significant value.
Furthermore, given the size and breadth of the U.S. economy, it just isn’t feasible for a single firm to see all potential investments that may fit its profile. This desire for above-market returns includes working with independent sponsors who may have access to investments that these capital providers may not. These independent sponsors also frequently have some additional expertise, such as experience in a specific industry or relevant contacts, or they may actually be operators within the industry. This allows them to differentiate themselves from other players pursuing the same investment opportunity.
So, capital providers look at the full equation and say, “Well, I can be creative and partner with an expert who has found some high-quality opportunities, or I can continue to participate in the overall market.”
Personally, I don’t see many changes in the future. I think the independent sponsor model has become legitimized and accepted in the industry, and this has led to even more capital providers entering the market and looking to back independent sponsors. I believe this trend will continue into the future.
Q: What are the most common misperceptions about the independent sponsor model?
HN: That independent sponsors are unsophisticated or that they are only interested in getting a couple of investments done and not building their firms. The facts are the opposite. Most have a significant amount of private equity experience, often at much larger firms, with many having extensive experience at the highest echelons of the private equity industry.
Many established private equity firms today started off as independent sponsors. We are trying to follow in their footsteps by building a strong team with institutional best practices, differentiated relationships and value-add strategies, all of which would build a firm that will thrive for the future.
Q: Recognizing every deal is different, what are some of the most important considerations for you when choosing a capital partner for a deal?
HN: Any partnership requires numerous complementary strengths, and picking a capital partner is no different. We look for synergy on the vision for the company and how to create value for the partnership, experience working with independent sponsors, ability to invest together on multiple projects and an ability to partner effectively. We’ve been fortunate to have some really good partners over the years who have really fit that mold.
About Haran Narulla
Haran has been investing in companies for more than a dozen years. Prior to founding Tygon Peak Capital, Haran was a partner at Blue Wolf Capital, a New York-based private equity firm, where he spent close to 10 years. Haran joined Blue Wolf after beginning his private equity investing career at Sun Capital, a private equity firm with more than $9 billion in assets under management. Haran spent four years as a member of the private equity steering committee for the United Nations-supported Principles for Responsible Investment, which comprises both asset owners and asset managers working to understand environmental, social and governance factors in investment decision-making.
Haran began his career in finance in Salomon Smith Barney’s investment banking division advising on mergers and acquisitions and leveraged finance work for large industrial companies. He received his bachelor’s degree with honors in business from Indiana University and was a member of the business honors program. Haran is a member of Beta Gamma Sigma.
To contact Haran Narulla, email [email protected].
Want to Know More?
You can meet Haran and other impressive independent sponsors at the 2019 McGuireWoods Independent Sponsor Conference in October: www.independentsponsorconference.com