Financial sponsor

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A financial sponsor is a term commonly used to refer to private equity investment firms, particularly those private equity firms that engage in leveraged buyout or LBO transactions.^[1]

In addition to bringing capital to an investment, financial sponsors are expected to bring a combination of capital markets expertise, various important contacts, strategies for operational improvement and experience owning leveraged companies.^[2] 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 and balance sheet as well as strategic initiatives including mergers and acquisitions, joint ventures and management restructurings. The company's CEO and other senior management maintain responsibility for day-to-day operational issues.

[edit] Financial 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.^[3]

Additionally, many companies owned by financial sponsors will raise equity in the public markets through an initial public offering 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.^[4]

[edit] See Also

• Private equity
• Private equity firm
• Private equity fund
• List of private equity firms
• Leveraged buyout
• Management buyout

[edit] References

v • d • e Topics on Private Equity and Venture Capital Basic Investment Types Buyout  • Venture  • Growth  • Mezzanine  • Secondaries History History of private equity and venture capital Terms & Concepts Buyout Financial sponsor  • Management buyout  • Divisional buyout  • Private Investment in Public Equity (PIPE) Venture Seed money  • Startup company  • Angel capital  • Angel investor  • Venture capital financing  • Pre-money valuation  • Post-money valuation  • Venture round Structure Private equity firms and funds  • Limited partnership  • Limited liability company • Carried interest Investors Institutional Investors  • Pension funds  • Insurance Companies  • Endowments  • Fund of funds Related financial terms Initial Public Offering (IPO)  • Mergers and Acquisitions  • Leverage  • High Yield Debt  • Capital structure Lists Private Equity and Venture Capital Investors  • Private equity firms  • Venture capital firms  • Portfolio companies List of finance topics

v • d • e Corporate Finance and Investment Banking Capital Structure Senior Secured Debt • Second Lien Debt • Subordinated Debt • Mezzanine Debt • Convertible Debt • Preferred Equity  • Common Equity Transactions (Terms & Conditions) Equity Offerings Initial Public Offering (IPO) • Follow-On Offering Mergers & Acquisitions Mergers & Acquisitions (M&A) • Takeover Leveraged Finance Leveraged Buyout • Financial Sponsor • Private Equity • Bond Offering Valuation Financial modeling  • Discounted Cash Flow Analysis (DCF)  • Net Present Value (NPV)  • Cost of Capital  • Comparable Company Analysis List of Investment Banks  • List of finance topics