The interview below is part of a 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 firstname.lastname@example.org.
Q: Why did you decide to become an independent sponsor?
Our firm was founded 30-plus years ago as a family office. It remains that
today. The entity Quabbin Capital manages a single, offshore family's
assets in the United States. The family’s commercial history started in
large projects and construction. The patriarch, who is now in his 80s, had
an engineering degree and made his money doing infrastructure work.
Starting in the late ’70s and early ’80s, the family invested in Boston
real estate, primarily commercial, and made significant returns. The family
was fortunate to sell the majority of its real estate assets before the
market reversal in the late ’80s.
Following these sales, the family shifted the focus of its alternative
asset investing to private equity and venture capital funds and some direct
private equity and venture capital investments. Besides handling these
investments, Quabbin performs other family office tasks including managing
two California vineyards and overseeing personal real estate in the Boston
area. We are one part typical family office and one part private equity
investor. We are a little different from most independent sponsors — or
fundless sponsors — because the family usually invests along with the three
principals from Quabbin: myself, Steve Leese and John Snow. This makes
Quabbin a sort of “semi-funded sponsor.”
Since I joined the firm seven years ago, we have shifted more of the focus
on the alternative assets side to serving as a direct private equity
investor. The standout investment we made was Chandler Signs, based in
Dallas. It is a national outdoor sign manufacturer for Fortune 500
customers that generates close to $100 million in revenue annually. Our
customers are companies like Chick-fil-A, Marriott and Hilton Hotels, major
banks and healthcare firms, among others. Chandler is fortunate to have a
well-diversified customer base. Chandler was our template transaction and a
new focus for Quabbin. It essentially represented the launch for the
independent sponsor model.
The family is interested in investing usually a portion — approximately 10
percent — of the equity capital necessary to complete these deals, but we
need to raise the majority of the equity, mezzanine and senior debt from
other groups. That is why, when we sign a deal, my two colleagues and I act
more like an independent sponsor and raise the majority of the capital from
We have been operating in this hybrid, semi-funded sponsor model for about
five years. Prior to that, we were primarily investing the family's PE
allocation as a minority investor in other private equity-backed direct
deals or we supported other independent sponsors on a minority basis. We
watched these independent sponsors and saw the model be successful. This
led us to believe we could do the same thing, serving as the lead sponsor
and actively managing these businesses.
Q: What are some of the most impactful reasons you think the
independent sponsor model has grown so robustly?
One reason why I think it is growing is that it is a bit of an outsourced
deal-origination model for some general partners (GPs). Our first deal was
with a GP: Dos Rios Partners, based in Austin, Texas. We closed Chandler
with them. We also had other partners in that deal, which Dos Rios sourced:
Main Street from Houston and Capital Southwest from Dallas.
We brought a good deal to Dos Rios. It was priced well and well down the
road towards closing. We had a fully negotiated and signed letter of
intent. We hired a law firm on our nickel and took on the expense of
drafting a purchase agreement. We had fully negotiated term sheets on the
senior debt. We also had gone at-risk and paid for the quality of earnings
analysis. By the time we brought our equity partners into the transaction,
we felt like we had completed 90 percent of the diligence necessary to
close the transaction.
We feel that, for a GP like Dos Rios, there was a lot of value. It is an
auction from the standpoint of us trying to choose a partner, but the field
is so much smaller. If you think about efficiency of time for a GP, it is
usually one of two or three firms being considered by an independent
sponsor as a partner. This outsourced deal-origination model works for some
The other reason is the limited partners (LPs) side. We are working on a
transaction now with a group that is helping us fundraise from some LPs. We
are trying to raise our equity more like a GP would do, but on a
deal-by-deal basis instead of raising it for a committed fund. We are
trying to tap the LP universe primarily for the equity.
To elaborate further on why I believe the independent sponsor is growing,
part of it is you are getting support from the GP community, and there is
also a strong desire for LPs to put money directly into deals. A number of
LPs receive equity coinvest rights when they sign up for a fund with a GP.
Oftentimes, their appetites are not satisfied just with those
opportunities, so they are looking for other chances to make direct
I also believe family offices are supporting the independent sponsor model.
We have talked to a number of family offices about being our partners —
essentially being the LP partners for us when we have a signed transaction.
I believe family offices like that direct access. Their choices are
investing in a fund or trying to do direct deals. I think we provide deal
origination for the family offices and a functioning, working executive
team within Quabbin.
What we like to do once a deal is closed is roll up our sleeves and take a
highly active role in day-to-day operations of the business to help add
value. We tend to be very supportive of and involved with management teams.
For instance, my partner Steve Leese was the interim chief financial
officer for Chandler for three years before he hired a replacement. I ended
up completing a major real estate project for Chandler to move the company
from an older facility to a new, much larger facility. That project took
two years from start to finish. Chandler is now in a state-of-the-art
facility with the capacity to expand significantly as the business grows.
Q: What are the most common misperceptions about the independent
There are examples of independent sponsors that essentially get a book from
an auction and then go and try to shop that with potential GP or LP
partners, but those independent sponsors perform almost no work up front to
put the deal together first. If they get lucky and close a deal, they do
little except collect board or management fees, but are not earning those
fees. That can cause a bad reputation for independent sponsors. That is one
end of the spectrum.
The other end is hopefully where we sit. We take things far down the road
in terms of being a lot closer to closing and adding pre- and post-closing
value. Pre-closing, we do much of the work and go at-risk for dead deal
costs. Post-closing, we roll up our sleeves and get busy and do significant
things to add value to the company.
I think the misconceptions exist because of bad behavior by some groups.
Q: Recognizing every deal is different, what are some of the most
important considerations for you when choosing a capital partner for a
When looking for a capital partner, we are trying to achieve a mutually
beneficial and respectful relationship, where they see the value we bring
and know we are earning our management fees over time. We want our partners
to recognize that we have played an important role in the successful
outcome of the transaction, which is why over the 3-to-5-year hold period,
we work to add a lot of value.
When we get busy post-closing, we are looking at all of the departments
within the company: finance, manufacturing, human resources and sales and
marketing. Generally speaking, we divide those between the Quabbin partners
and take on the specific tasks within those disciplines.
We try to bring best practices to these companies. Oftentimes, they are
entrepreneur-owned, and we are the first institutional capital in these
businesses. This creates another level of reporting and discipline to the
new debt holders and the equity holders. There is a new monthly reporting
package that needs to be generated. We try to spearhead that work.
We also try to help the company by not only bringing in best practices, but
also growing the company significantly through special project roles. As
with most private equity investors, growth is critical to a successful
outcome, so Quabbin also handles evaluating add-on acquisitions. In the
Chandler example, we have evaluated about a dozen potential add-on
acquisitions. We have decided to grow the company organically, but growth
by acquisition was certainly on the agenda when we bought the company. We
feel like when we are paid a management fee, we are given an opportunity to
earn it and want to make sure we do so.
About Charles Wahle
Charles "Chip" Wahle joined Quabbin Capital in 2014 to enhance the firm's investment origination, evaluation, processing and monitoring capabilities. He is engaged in transactions from start to finish and plays an active role in managing acquisitions post-closing. Wahle developed broad corporate finance experience through his work with large corporate and middle market entrepreneur-owned businesses. He has worked for many years on mergers and acquisitions across a variety of industries and is focusing his attention on helping to build the Quabbin portfolio and assets under management.
To contact Charles Wahle, email email@example.com.