A financial sponsor is a
private equity
Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...
investment firm, particularly a
private equity firm that engages in
leveraged buyout transactions.
Sponsors and management
In addition to bringing capital to a deal, financial sponsors are expected to bring a combination of
capital markets expertise, various important contacts, strategies for
operational improvement, and the experience of owning leveraged companies. As the owners of the company, financial sponsors rarely manage a company directly and are most active in issues relating to the company's
capital structure
In corporate finance, capital structure refers to the mix of various forms of external funds, known as capital, used to finance a business. It consists of shareholders' equity, debt (borrowed funds), and preferred stock, and is detailed in the ...
and
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
as well as strategic initiatives including
mergers and acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorpt ...
,
joint venture
A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to acce ...
s, and management restructurings. The company's CEO and other senior management maintain responsibility for day-to-day operational issues.
Sponsors and other investors
Various investor classes look to the financial sponsor to generate value in a company as much as the management or operations of the company. In particular, debt providers are willing to extend credit in the form of
bank loans,
high-yield debt and
mezzanine capital based in part on the reputation of and relationship with the financial sponsor.
Additionally, many companies owned by financial sponsors will raise equity in the
public markets through an
initial public offering
An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investm ...
or (
IPO) as a means of exiting an investment. Public investors will seek to align their own interests as much as possible with those of the financial sponsor by limiting the financial sponsor's ability to sell shares and managing the use of proceeds from the offering. Various studies have been conducted to evaluate the impact of financial sponsor ownership on the performance of
IPOs.
Financial sponsors profit from flotations in US
(DowJones Financial News, 2007)
See also
*Private equity
Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...
* Private-equity firm
* Leveraged buyout
References
Private equity
Investment
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