In this conversation, Chase Stuart of Ice Miller shares a candid, practitioner’s perspective on how independent sponsors can compete effectively in founder-led sale processes, structure deals for long-term alignment, and avoid common pitfalls that derail transactions after an LOI is signed. Drawing on decades of experience advising independent sponsors, capital providers, and lower-middle-market investors, Chase discusses what truly differentiates sponsors from traditional private equity funds, how expectations around valuation and capital partners can make or break a deal, and which often-overlooked economic and governance terms matter most over the life of an investment.

Q: Chase, in a competitive process, what can an independent sponsor do to stand out to a founder without over-committing or taking unnecessary risk?

It all starts with the profile of the selling owner. In most cases, if a founder is set on selling to a traditional private equity fund, they’ll do that. So this is an opportunity for an independent sponsor to lean into what it means to be an independent sponsor and position the transaction as a true value partnership; in other words, differentiated from a traditional fund in a positive way.

It’s not, “We don’t have a pool of committed capital.” It’s, “We have a flexible structure. I’m personally in this with you. We’re going to grow together, and we’ll bring in the right capital partner for this business.” Independent sponsors can credibly align with founders, especially in cases where there’s meaningful rollover equity, and say, “We’re going to be in this as partners and raise capital to support our growth plan.” That helps you stand out without dancing around the questions about sources of funding.

Q: Is there anything an independent sponsor can do to showcase themselves to a founder that a PE firm wouldn't do or can't do? 

It really comes back to the sponsor’s thesis and what makes them distinctive. If you have a meaningful operating background in a particular sector, you should lead with that. The message is: “We’re not a generalist fund: we’re operators with real experience in this space,” which lets you speak the founder’s language and build credibility quickly. That can be a real edge versus a more generic platform.

Q: When you look at LOIs that get signed but the transaction ultimately doesn’t close, what are the typical reasons they fall apart? 

Valuation is always a driver. We’re seeing more deals derail at the quality of earnings stage than did in prior years. Some of that is the mix of businesses coming to market, and candidly, there’s also an incentive to stretch on valuation to win a competitive process. That often leaves little margin for error if the QofE comes back light.

While there is no way to get ahead of a founder who thinks his or her business is worth more than it is, we recommend tying valuation in the LOI to assumed earnings or adjustments – i.e., “valuation is based on X level of TTM EBITDA.” That way, if the QofE supports a materially different financial profile, you’ve already set the framework for why price may need to move or an earnout might have to be introduced.

The other common issue is expectation management around the capital partner. Many founders don’t fully appreciate that once you bring in a capital provider, you’re bringing in another stakeholder with their own diligence process, risk tolerance, and documentation positions. The independent sponsor has to quarterback that by managing founder expectations, and also managing the capital provider. That means being transparent with the capital provider about what will and won’t work with a founder (“this isn’t a situation where you can bulldoze terms”), and being equally transparent with the founder about how the partner will engage. If you don’t manage both sides, the capital partner can unintentionally disrupt an otherwise strong deal.

Q: Independent sponsor deals often involve bespoke structures. This is where you come in… What are the less obvious terms—besides carry and promote—that materially influence alignment over the life of a deal?

One that comes up more than people expect is how fees on add-on acquisitions are handled. Investors like add-ons in principle, but if the independent sponsor is receiving a 1–2% fee on each add-on’s enterprise value, some capital providers view that as a potential misalignment.

We’ve seen a handful of capital providers push back on closing fees for add-ons for that reason. I don’t necessary agree with that position and I generally think sponsors should advocate for their economics, but it’s an issue that can affect alignment and needs to be addressed directly.

Another one is tax distributions and how they’re treated in the waterfall. It’s rarely a headline term at the term-sheet stage, but the way tax distributions interact with preferred returns and carry can meaningfully change economics over time. If it’s not discussed early, it can create surprises later in documentation.

Q: Can you talk about Ice Miller and how you differentiate? What makes you a nimble and well-sized firm for this kind of work? 

Ice Miller has represented capital providers—including SBIC funds and lower-middle-market private equity—for decades. Historically, we’ve done a significant volume of work for lower-middle-market funds, SBICs, and family offices that are active in independent sponsor transactions. That gives us a useful perspective on what’s market, how capital providers think, and what they’re going to focus on—practically and in the documents.

We’ve also been early and intentional in the independent sponsor space. We represent independent sponsors across the country, and particularly in New York, where our independent sponsor practice is headquartered. That’s been an advantage as sponsors spin out of larger platforms in a financial center like New York. We can help them navigate that first deal with a clear roadmap: what to expect, what’s negotiable, the key diligence and documentation workstreams, and a checklist that reflects what we’ve learned from doing a lot of these. Newer sponsors get the benefit of that institutional knowledge in a way that makes the process more efficient and provides a safety net to the sponsor.