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Independent Sponsor Market: Why Direct Deals Are Growing at 52.8% CAGR

December 21, 2025 | Corporate Blog

What market has a 52.8% CAGR in last five years? Answer: the direct deal market (often led by independent sponsors).

Drivers for that growth include:

NOT SO GOLDEN HANDCUFFS: VPs, Principals, and others at established PE firms doing the carry math (and realizing the independent sponsor model to conduct their own direct deals may be a better option)

FREEDOM: Ability to be entrepreneurial and control one’s destiny - pursue lower middle market deals that might have been too small for their prior firm / outside that firm’s investment mandate.

LEGITIMACY: today’s independent sponsors are more sophisticated - with their teams, operating partners, investment thesis, deal sourcing strategies, etc.

ACCESS TO CAPITAL: 318 SBICs in the US + traditional lenders + family offices + high net worth investors = path to funding compelling direct deals.

STRUCTURE FLEXIBILITY: The direct deals in the lower middle market offer tremendous flexibility: rollover equity, seller financing, and/or earn-outs (one thoughtful I-sponsor I know refers to this as the “Holy Trinity” of deal structuring). Plus, more freedom for structuring Qualified Small Business Stock transactions (i.e., tremendous capital gains tax savings)

ECOSYSTEM: a community of specialized trusted advisors (law firms, accounting firms, consultants, etc.) - many known for their expertise, network, and value in the independent sponsor / direct deal world.

John Koeppel's commentary on "The 'Golden Handcuffs' Are Off: Private-Equity Employees Leave for Smaller Firms," Nov. 20, 2025, The Wall Street Journal.

Disclaimer: The information in this post is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from our firm or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

Related Team

John J. Koeppel
Partner | Executive Committee | Team Leader - Private Equity | Team Leader - Independent Sponsor