We sat down with Caroline Kung, Managing Partner of SagePath Capital, to explore key issues like future middle-market drivers, risks and opportunities to look out for over the next 12 months, and tips for building a successful business model. Read on for insights on these topics and more.

Q. What 3 key factors will drive the development of the middle market over the next 12 months?

1. Narrowing Bid-Ask Spread and Increased Market Activity: As the bid-ask spread narrows, more assets are expected to come to market, increasing transaction activity and opportunities for middle-market investors.
2. Challenges for Pandemic-Acquired Companies: Companies acquired during the pandemic deal boom at peak valuations may face performance struggles, leading to potential distress. This could create unique opportunities for strategic acquisitions and restructuring within the middle market.
3. Potential Easing of Interest Rates: A mild easing of interest rates could boost valuations, providing a favorable environment for middle-market transactions and investments.

Q. What is the single top risk and the single top opportunity, which independent sponsors need to look out for over the next 12 months?

As the market becomes more competitive and efficient, independent sponsors face the risk of being squeezed out of deals. However, this also presents an opportunity: more assets become available for those ready to engage in hands-on value creation. Independent sponsors are well-suited for these scenarios due to their strong alignment of interests, deep sector expertise, and concentrated risk allocation. Their vested interest in the success of each deal drives them to ensure optimal outcomes, making them ideal partners in today's evolving market landscape.

Q. What are your top 3 tips for independent sponsors looking to build a business model to help them compete in today's competitive and diversified market?

1. Leverage Direct Investment Experience: Ensure you have substantial direct investment experience or access to professional investors who can provide strong support. This foundation is crucial for making informed decisions and achieving successful outcomes.

2. Craft a Unique Strategy: Develop a distinctive strategy where you have a competitive advantage. Focus on areas where you can excel and differentiate yourself from the competition, ensuring your approach is tailored to your strengths.             

3. Build Your Investor Network Early: Establish and nurture your investor network well in advance. Having a robust network of investors ready to back your ventures is essential for securing the capital needed to compete and succeed in the market.

Q. Why will you be speaking at iGlobal Forum's Independent Sponsors Summit in NYC on September 17-18? 

iGlobal is one of the marquee events for IS in the market. They are an early mover in the space, and most people excited to gain exposure to the tremendous growth in the IS segment — investors, sponsors, and lenders — go to at least one iGlobal event a year. I’m honored to be speaking on a topic I’m very passionate about and look forward to connecting with peers and partners. 

Caroline will join us at the event for the panel discussion on "From Wild West To Established Alpha - How To Succeed In Today’s Competitive & Diversified Market,” together with fellow panelists Drew Brantley (Frisch Capital Partners), Nick Russell (Tuckerman Capital), Rob Bauer (Bassett Creek Capital) and Paul Marino (Sadis & Goldberg), as well as moderator Claudine Cohen (CohnReznick) at the 17th Independent Sponsors Summit this September in New York. They’ll discuss what the next 12 months will hold for the middle market, and deep dive into credit markets, geopolitics, and emerging trends, and how they impact your portfolio and investment processes. Register now to join us this September at the Independent Sponsors Summit.