Co-investments are evaluated on three dimensions: the company, the sponsor, and the deal terms. A weakness in any one is enough to pass.
The questions
1. Is the business growing, stable, or declining? 2. How concentrated is the customer base? 3. What is the entry multiple versus comparable transactions? 4. Is the capital structure conservative or aggressive? 5. What is the sponsor's track record, with realized and unrealized returns? 6. How much of the sponsor's own money is in the deal? 7. Who else is in the syndicate? 8. What is the projected hold period? 9. Are there reasonable downside cases modeled, or only base and upside? 10. What are the governance rights for non-control investors?
How to weigh them
Treat any unanswered question as a no. Sponsors who cannot answer one of these directly probably should not be running the deal.
If you are evaluating a transaction in this space and want a candid second look, Solender Capital is happy to compare notes. Reach out through our contact page and share what you are working on.