A Lender’s Lens on the Independent Sponsor Market
July 15, 2025 – By Javier Casillas, Global Chief Credit Officer, and Sam Goldworm, Managing Director and Head of Debt Capital Markets, WhiteHorse Capital
Once peripheral, the independent sponsor model is now central to lower middle market private equity. Independent sponsors—investors who acquire companies without committed fund capital, instead raising equity on a deal-by-deal basis—have grown significantly in number and credibility. What began as a loose network of dealmakers has matured into a scaled, professionalized segment of the sponsor landscape.
Today, industry trackers count over 1,500 active independent sponsors in the U.S., nearly double the count of five years ago. Attendance at independent sponsor conferences has tripled, as professionals leave traditional private equity platforms and operating roles to pursue transactions independently. Many are now backed by institutional capital, including family offices and co-invest platforms. A more recent development is that certain institutional LPs have carved out capital to support independent sponsor transactions. This mirrors the broader LP trend toward direct co-investment and the hiring of staff capable of underwriting deals independently.
At WhiteHorse Capital, we’ve seen this growth reflected in our deal flow. Our volume of independent sponsor deals has increased materially over the last five years. Equally important, the quality and consistency of this pipeline have improved, as sponsors deepen equity relationships, sharpen sourcing strategies, and bring a more institutional approach to the market.
What Defines an Independent Sponsor?
Independent sponsors and traditional private equity funds often pursue similar lower middle market control deals. But their models differ in fundamental ways. Traditional sponsors raise committed capital from LPs into blind-pool funds with structured fees and governance. Independent sponsors raise equity deal by deal—typically after signing an LOI—and operate without fund infrastructure.
This distinction shapes execution, alignment, and governance. Independent sponsors typically lack the fee income, team size, and portfolio diversification of traditional funds. But the leaner setup often results in higher personal engagement, tighter alignment, and a more focused diligence approach.
The term “independent sponsor” also spans a wide range. Some are first-time acquirers. Others are family offices with permanent capital and deep resources. We frequently see family offices lead deals, syndicate equity, and manage assets directly. Here, “independent” refers not to sophistication, but to the absence of a fund vehicle. Lenders should not mistake form for substance.
Origination in a Relationship-Driven Ecosystem
Traditional sponsors often benefit from brand visibility, sourcing teams, and firmwide track records. Independent sponsors typically lean on personal networks. Without in-house capital markets staff, they usually avoid broad auctions. Instead, deal flow arises through long-standing relationships—with intermediaries, executives, sellers, and industry insiders.
At WhiteHorse Capital, we’ve built our origination model accordingly. With over 70 investment professionals across 13 offices in the U.S., we maintain regional coverage and local relationships that enable us to engage early and evaluate efficiently.
We find that sponsors with deep sector backgrounds are especially effective at surfacing compelling, off-the-radar opportunities. Their credibility with management teams and understanding of industry dynamics often allow them to preempt competitive processes or win on insight rather than price.
Independent sponsors manage multiple deal workstreams—equity syndication, diligence, debt financing—with lean teams. They value credit partners who can underwrite efficiently and commit without unnecessary friction. Our single-capital platform and fast approval process allow us to meet those expectations.
A Distinct Risk Profile
Independent sponsor deals can pose distinct credit risks compared to traditional buyouts. Most notably, they lack a committed fund to provide automatic follow-on equity. But several features help offset that risk.
First, portfolios are typically concentrated. Sponsors often manage one or two investments at a time, which means each asset gets focused attention. In periods of stress, they are more likely to stay involved and problem-solve rather than exit. Strategic default is generally rare. Second, there is no “vintage” effect. In a fund, older assets may receive less attention once target returns are achieved. Independent sponsors are not bound by fund cycles. Each deal remains economically and reputationally significant throughout its life, reinforcing alignment.
Industry expertise is another key mitigant. Sponsors from operating or sector-specific backgrounds bring sharper diligence and better post-close influence. We underwrite accordingly, placing weight on operational credibility, access, and involvement.
Independent sponsor deals also tend to feature more conservative capital structures, with lower purchase multiples driven by the higher rate of proprietary sourcing. In addition, independent sponsor investments are generally less exposed to aggressive Liability Management Transactions (LMTs), which are more commonly enabled by looser documentation in traditional sponsor-led deals. The more bespoke nature of independent sponsor documentation often reduces loopholes and limits structural subordination risk, offering lenders a safer and more transparent covenant framework.
These transactions also demand flexibility from debt providers. Sponsors are often navigating complex, bespoke dynamics—from coordinating multiple equity investors to tailoring structure to each situation. Lending partners who can support this variability with a wide range of capital solutions—including revolvers, senior term loans, and junior capital—are at a clear advantage. At WhiteHorse Capital, this flexibility allows us to meet sponsors where they are and execute with certainty across diverse capital needs. The more bespoke nature of independent sponsor documentation often reduces loopholes and limits structural subordination risk, offering lenders a safer and more transparent covenant framework.
Given each deal requires a unique equity syndication, terms aren’t fully standardized and multiple investors’ input must be coordinated, which can prolong negotiations. Nonetheless, as the model matures, independent sponsor deal documents increasingly mirror traditional PE quality, with strong governance and market-based economics. Where equity syndicates are involved, we carefully diligence the investor base and governance rights, particularly around capital support and decision-making in adverse scenarios.
Why WhiteHorse Capital?
WhiteHorse Capital has been active in the independent sponsor market for more than a decade. These deals are a strategic part of our portfolio and a growing share of our pipeline. Our approach is rooted in platform design, disciplined underwriting, and long-term relationships. We bring four core advantages to this segment:
- Local coverage. Our team is embedded across the U.S., giving us early access to off-market and lightly intermediated deals.
- Execution certainty. Our balance sheet model enables direct commitments and fast execution, which sponsors need.
- Credit flexibility. We offer senior, unitranche, and junior capital across diverse capital structures.
- Track record. We’ve supported many sponsors from their first deal through their evolution into institutional managers.
In one example, we backed a debut control investment. After a successful exit, the sponsor raised a fund and returned to us for follow-on platforms. These relationships often deepen over time as sponsors scale.
Conclusion
The independent sponsor model is no longer a tactical workaround. It’s a durable structure for middle-market buyouts. In the hands of experienced operators and well-supported deal professionals, it can be just as sophisticated as traditional private equity. With the right partners, the model offers advantages in alignment, focus, and flexibility.
At WhiteHorse Capital, we’ve built the infrastructure, sourcing model, and credit strategy to serve this market with precision. We don’t view independent sponsors as exceptions. We see them as a critical and growing part of the direct lending ecosystem.
Javier Casillas is Global Chief Credit Officer, and Sam Goldworm is Managing Director and Head of Debt Capital Markets at WhiteHorse Capital.
Sources:
- Aviara Partners, “2025 U.S. Independent Sponsor Market Outlook”
- McGuireWoods & Cherry Bekaert, 2024 Independent Sponsor Deal Survey
- Middle Market Growth, “Family Offices and LPs Expand Independent Sponsor Allocations”
- Holland & Knight, “Private Equity Trends: GP Stakes and Independent Sponsors”
- Raymond James, “Independent Sponsor Market Trends Report 2024”
- BDO & Citrin Cooperman, “Independent Sponsor Deal Structure Insights”