Financing the search-fund and independent-sponsor acquisition

The private-debt market funds acquisitions first: seven in ten deals in the Deloitte tracker are acquisition-related. Independent sponsors and search-fund buyers compete for capital inside that majority, and the lenders active in sponsorless deals have built real frameworks for it. What changes without a PE house is not whether a lender will engage; it is what the buyer needs to show to replace the institutional wrapper the lender would otherwise rely on.

The sponsored mid-market of PE-backed LBOs and bolt-ons dominates the private-debt deal count. But sponsored does not mean universal. The Deloitte Private Debt Deal Tracker for Spring 2023 flagged that 102 of the rolling last-twelve-months’ deals involved no private equity sponsor. That is a substantial absolute count, drawn from a set of lenders who have demonstrated appetite for the segment. The market exists; the question for an independent buyer is how to navigate it.

Why acquisition deals dominate, and what it means for an independent buyer

Start with the shape of the market. Private-debt capital is overwhelmingly deployed into acquisitions: deals funding a buyout, a bolt-on or an owner-managed handover make up roughly 70% of European transaction activity. The refinancing and growth-capital tail is meaningful but secondary. For an independent sponsor or searcher, this is the right context: the lender has built its underwriting franchise around acquisition credits, so the structure, documentation and diligence expectations are already calibrated for a transaction.

What changes in a sponsorless deal is the counterparty profile, not the deal type; it is still an acquisition. In a fund-backed transaction, the lender knows the PE house, its track record and its approach to distressed situations. That institutional familiarity is part of what the sponsor brings, alongside the equity cheque. An independent buyer replaces it with something different: a credible operator, a documented investment thesis and a management plan that does not depend on a fund relationship team. Lenders who regularly see sponsorless deals have built explicit frameworks for evaluating that substitution. The ones who have not should not be in the initial process.

How much capital is available, and is the market growing?

The supply-side story matters here because it directly affects how hard a well-structured independent deal can push in a process. The ACC Financing the Economy survey tracks capital deployed by private-credit managers: in 2020 it was about US$196bn across the survey respondents; by 2023 it had risen to US$333bn. That is not a like-for-like market total, since sample composition shifts year to year, but the direction is not in dispute. The pool of capital available for private-credit acquisitions has grown materially, and it has grown into a market where most of that capital is chasing a finite deal count.

For an independent sponsor, abundant and growing capital has a specific implication: the marginal lender competing for good credits is less able to insist on sponsor-branded deal flow alone. A well-prepared sponsorless credit that a fund-backed borrower would have monopolised five years ago is now contestable. Not every lender will look at it; many mandates are explicitly sponsor-only. But running a targeted process across the right subset of lenders yields real competition.

What does a lender actually need from an independent sponsor?

The diligence expectations for a sponsorless acquisition are largely the same as for a PE-backed deal. What the lender is building is a view on three things: the quality of the business being acquired (cash flow stability, customer concentration, margin history), the post-acquisition capital structure (leverage multiple, interest coverage, free cash flow to service the debt), and the credibility of the person running it. In a fund-backed deal the last of these is partly supplied by the PE house’s track record. In a sponsorless deal it is supplied entirely by the buyer.

That means the credit story needs to travel further on its own. A quality-of-earnings review covering at least three years is effectively table stakes. A management presentation that explains the acquisition rationale, the 100-day plan and the cash flow bridge from day one to first covenant test is not optional. It is the document that replaces the fund relationship in the lender’s mind. Independent legal and commercial DD, shared with lenders under reliance, speeds the process considerably and signals that the buyer understands the lender’s workflow.

What structure should an independent sponsor expect?

Unitranche is the prevalent structure in the UK private-debt market at this ticket size, and it is no less available to an independent sponsor than to a fund-backed buyer. The differences that tend to emerge are in the covenant package and the lender-consent thresholds rather than in the instrument itself. A lender without a PE house to call if headroom tightens may want tighter maintenance covenants, lower permission thresholds for bolt-on acquisitions, and a management-change provision that protects their position if the identified operator steps back. These are negotiating points, not refusals. But they need to be negotiated, not accepted as boilerplate.

The practical lesson is to target lenders who demonstrably participate in sponsorless deal flow rather than approaching the full market indiscriminately. Lenders who do not do these deals will decline politely and absorb calendar time; lenders who do will engage substantively from the outset. A well-framed credit story presented to the right ten lenders will produce more and better tension than the same story shown to thirty.