Independent private equity sponsor economics fall in a recognizable range. Wide deviations should prompt questions.
Transaction fee
Two to four percent of equity raised, paid at closing. Smaller deals sometimes carry a higher percentage; larger deals trend lower.
Management fee
One to three percent of EBITDA annually, or a fixed dollar amount ($150,000 to $500,000), paid by the portfolio company. Some sponsors waive this fee if the operating company is small.
Preferred return
Eight percent is the market standard, compounded annually. Some sponsors offer a higher pref (ten percent) in exchange for a steeper promote schedule.
Promote
Twenty to thirty percent above the pref, sometimes tiered (for example, 20 percent up to a 2x multiple, 30 percent above 2x). Catch-up provisions for the sponsor are uncommon in the independent sponsor model.
Co-invest
Strong sponsors commit one to five percent of equity personally. Anything less than one percent deserves a direct conversation.
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.