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 email@example.com.
Q: Why did you decide to become an independent sponsor?
Nick Barker (NB): We left our prior firm in 2018 with a desire to continue doing deals but under a new banner. Since neither of us has a nine-figure net worth, our options were to either try and raise a fund or proceed as independent sponsors. We previously had done a handful of deals with independent sponsors, and Chris had spent a number of years marketing to the independent sponsor world, so we were quite comfortable with the model. Raising a fund would take some time, so it made sense to start out as independent sponsors so we could focus on getting deals done. Now we're having so much fun being independent sponsors, we haven't had much time to think about raising a fund.
Q: How long have you been operating as an independent sponsor, and how long did it take to close your first deal?
Chris Sheeren (CS): We launched Longhouse in August 2018 and closed our first deal in June 2019. Our second platform closed about five months later. While we didn't think it would be easy to get our first deal done, we felt like we brought a good amount of deal experience and capital source contacts, such that we had a decent chance of being successful.
Nonetheless, we feel very fortunate to have closed two platforms in our first 16 months.
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 for the future?
NB: Sellers want to partner with people they like and trust but also people who can help them grow their business. The right independent sponsor can check both of these boxes. It's important for us to click with the seller/management team, but we also need to bring something to the table in terms of industry experience and executive contacts. If we don't think we can help grow the business, we won't pursue the deal. Sellers should always want to find a value-added partner.
CS: As independent sponsors have proven over the years that they can both lock up a deal at an attractive valuation and be a key part of the board — or even the management team — post-closing, the mergers and acquisitions (M&A) community has increasingly recognized the viability of the independent sponsor model. As the model becomes more accepted, more experienced professionals are drawn to it, and the success builds upon itself.
Q: What are the most common misperceptions about the independent sponsor model?
NB: The biggest stigma we battle as independent sponsors is the notion that "you guys are just brokers." While there may be a handful of independent sponsors looking to get a deal closed at any cost, most of us are investors who think like business owners — because we are business owners.
At Longhouse, we can tell sellers about the 60-plus investments we've made and remind capital sources that we've been hitting the Association for Corporate Growth/Opus Connect/M&A circuit since 2005. We are putting a personally meaningful amount of capital into every deal we do, and our incentives for growth are perfectly aligned with those of the seller and the management team.
Q: Recognizing every deal is different, what are some of the most important considerations for you when choosing a capital partner for a deal?
CS: First and foremost, we want to work with people we like and trust. Life is too short to knowingly surround yourself with jerks. A lot can happen in a five-year investment period, and you want to be confident that your partner is reliable and isn't going to make rash decisions at the first sign of trouble. Our partners on our first two deals — Peninsula Capital, Valesco Industries and Brookside Capital — are groups we've known for many years and, not surprisingly, they've been great to work with.
NB: There are certainly other factors to consider: How well do they know the industry, and can they bring value to the business? Have they worked with independent sponsors before? Do they have sufficient capital to fund add-on acquisitions if that's a likely avenue for growth?
Fortunately, we've been able to build a broad network of contacts over the years, including funds and family offices, but we generally start our outreach on any new deal with the groups we know best.
About Nick Barker
Nick Barker, partner with Longhouse Partners, has spent more than 20 years in M&A and corporate development with firms including Huron Capital, CCC Information Services, Ryan Enterprises Group, and Bear, Stearns & Co. He has a bachelor's in economics from the University of Michigan and an MBA with honors from the University of Chicago Booth School of Business.
About Chris Sheeren
Chris Sheeren, partner with Longhouse Partners, has more than 25 years of business experience in M&A, turnaround consulting, public accounting and sales. He has worked with Huron Capital, Conway McKenzie, PricewaterhouseCoopers and Revlon. He has a bachelor's in English and speech communications from the University of Nebraska, has an MBA from the University of Michigan and is a former CPA.