Financial sponsor

Financial Sponsor

Financial sponsor

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Description:
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.

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 leverage 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 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.

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 or...
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