Building a Partnership Between the Investment Sponsor and Operating Sponsor
“You want to understand what you got wrong. But it's really important to look at the things you got right and try to replicate that in future situations.”
What is an Operating Sponsor
An operating sponsor is basically a mini CEO or a General Manager of a specific sector of a company. Someone who is ready to operate the P and L of a newly acquired business.
Building a Relationship with Operating Sponsor
The relationship between the Operating Sponsor and the Investment Sponsor should be symbiotic.
It is better if the deal originates from the Operating Sponsor. The Operating Sponsor is the one who has to live and breathe the business post-close, manage the project, and is the expert in that particular industry.
On the Corp Dev side, you have to trust that they find the right acquisitions for them in their sector, so you can focus on the numbers and the sustainability of the business.
The key to keeping everyone aligned is to make sure that every side of the equation understands all of the component parts to the deal. The hardest part is simplifying everything into something that is easy for the Board to understand. They won’t have the time to go through every detail, but it is critical that they get the best summation of the detail and understand all of the risks and upsides, and opportunities of the business plan.
Handing off the Deal to the Operating Sponsor
The Corp Dev team should hand off the deal to the Operating Sponsor in the late stages. To the point where purchase documents are nearly finished and the integration plan is already in the works.
It is the Corp Dev team’s job to help think and frame the different milestones. But the Operating Sponsors are the ones who are going to live, breathe and drive the business. They are going to be responsible for executing the plan post-close. Corp Dev team members should just observe and analyze after the handoff.
Building strong relationships between the Investment Sponsor and the Operating Sponsor takes time, experience and a lot of repetition. The level of trust that you eventually want to achieve will only come through repetition.
The Investment Sponsors should also be open-minded on how to work with the operators. They are the ones driving the ship when it comes to their business. Investment Sponsors should try and understand what they are trying to accomplish and what the plans are.