Episode 159: John Koeppel, Partner and Team Leader, Private Equity and Independent Sponsors, Lippes Mathias LLP John is a Partner at Lippes Mathias LLP, where he sits on the Executive Committee and leads the firm's Private Equity and Independent Sponsor practices. In more than 25 years, he has led 250+ transactions, including M&A, fund and SPV formations, co-investments and financings, ranging from $5M to more than $250M, with a focus on direct deals. Before joining Lippes, he was a partner in the private equity and investment funds group at an Am Law 100 firm. John earned his J.D. magna cum laude from the University at Buffalo School of Law, and his B.S./M.B.A. from the University at Buffalo. Topics: The State of Independent Sponsor CapitalThe Three Economic Levers: Closing Fee, Advisory Fee and CarryWhen to Use a Placement AgentEarnouts, Rollover and Seller Notes to Bridge Valuation GapsC Corp vs. Flow-Through: QSBS and Bonus DepreciationA Section-by-Section Walkthrough of a Template LOI ...and so much more. Top Takeaways The shortage is quality deals, not capital."The lack of supply is on quality deals, not on capital," John says. He counts 318 SBICs and well over 1,000 capital providers active in the space, alongside an estimated 5,000+ independent sponsors. Deal sizes are climbing too: John closed a $140 million independent sponsor deal this year, something he says the market would have laughed at five years ago. The good deals get funded, and the number one differentiator in finding the right equity partner is whether that firm has invested successfully in your sector before. Instead of going out to 1,000 groups, find the 20 to 40 that love your space.Know the three economic levers, and where they bend.Every independent sponsor deal comes down to a closing fee, an ongoing advisory fee and carried interest. The closing fee is typically 2% of enterprise value, or $200K on a $10M deal, and is usually rolled into equity as profits interests, though first-time sponsors can sometimes negotiate part of it in cash. The advisory fee is most often 5% of EBITDA, and can go higher in the first year or two when the sponsor is rolling up their sleeves. Carry typically starts once the capital partner gets its money back plus an 8% preferred return, then steps up in tiers. One term savvy sponsors never overlook is broken-deal coverage: many capital partners will cover 80% or more of expenses if the deal falls apart.Every LOI has a missing party at the table."There's really three parties to every IS deal. There's the buyer, there's the seller, and there's the capital," John says. When the LOI gets signed, the capital isn't in the room. A seller may love a massive earnout, but that structure may not be fundable once debt and equity partners weigh in. Seller notes of about a turn of EBITDA at 6% to 10% are common, typically junior and unsecured. And exclusivity is "not even close" the most important section for any buyer. It's one of the few binding provisions in an LOI, and sellers increasingly ask independent sponsors for a proof-of-funds checkpoint at day 45 or 60 to keep it. About Lippes Mathias LLP Lippes Mathias LLP is a national law firm with more than 220 attorneys across 17 offices in the U.S. and Canada. Its Private Equity and Independent Sponsor practice, led by John, focuses on direct deals in the lower middle market, supported by a team of 30+ professionals across tax, finance and the specialty areas needed to close a deal. The firm was recently ranked one of the top three law firms in the direct deal and independent sponsor space, and it tripled its independent sponsor deal volume last year. Investors & Operators is brought to you by 51 Labs 51 Labs is a marketing agency for the lower middle market. We offer full-service digital marketing for PE, portfolio companies, IB, VC, hedge funds. Brand Identity, Marketing Strategy, Marketing & AGM Video, LinkedIn Strategy & Execution, Web Design & Development, CRM Support & more400+ videos100+ projects#1 content creator on LinkedIn in the lower middle market
