Tidewater Health Ventures: Navigating the Rise of the Independent Sponsor Asset Class

At Tidewater Health Ventures, we are proud to be part of an asset class that has matured significantly over the past decade, as vividly illustrated in Citrin Cooperman’s 2024 Independent Sponsor Report. Seven years after their inaugural report, the independent sponsor model—once dubbed the "Wild West" of private equity—has evolved into a structured, credible, and high-performing sector. As an independent sponsor focused on delivering value in the healthcare space, we see this report as both a validation of our approach and a roadmap for the opportunities ahead.

A Maturing Market with Proven Returns

The 2024 Independent Sponsor Report underscores the remarkable progress of our sector. Since Citrin Cooperman’s first report in 2017, independent sponsors like Tidewater Health Ventures have gained traction with sellers, capital providers, and institutional investors alike. This year’s findings reveal that 74% of independent sponsors who have achieved liquidity events delivered returns exceeding 3x to investors, with 30% surpassing 5x. These numbers affirm what we’ve long believed: the independent sponsor model offers a compelling value proposition, rivaling—and in some cases surpassing—traditional private equity returns.

Our success at Tidewater Health Ventures mirrors this trend. By focusing on underserved niches within healthcare, we’ve been able to unlock hidden value, leveraging our operational expertise and strategic partnerships to drive outsized returns. The report’s data reinforces our conviction that independent sponsors excel in finding potential where others see problems—a hallmark of our approach.

Targeting the Sweet Spot and Beyond

The report highlights that 82% of independent sponsors target companies with EBITDA between $2 million and $5 million—a range that has historically been our "sweet spot" as well. However, we’re also seeing a shift, with 42% of respondents now pursuing deals with EBITDA of $10 million or more. At Tidewater Health Ventures, we’ve adapted to this trend, expanding our focus to include larger healthcare transactions where our industry expertise and nimble structure give us a competitive edge over larger private equity firms.

Younger firms (five years or less) are more likely to target smaller deals under $2 million in EBITDA, while more seasoned players like us increasingly pursue companies in the $5 million to $10 million range (63% of firms six years or older). This evolution reflects the growing credibility of independent sponsors as buyers, a sentiment echoed by contributors to the report: “A decade ago, independent sponsors primarily pursued deals in the $2 to $10 million range, but now we are seeing more of them pursue larger transactions.”

Flexibility and Collaboration: Our Competitive Advantage

One of the standout findings in the 2024 Report is the rise of partnerships between independent sponsors. Twenty-three percent of respondents have partnered with another sponsor on a transaction, a trend we expect to accelerate. At Tidewater Health Ventures, we’ve embraced collaboration as a way to enhance bandwidth and bring specialized expertise to complex healthcare deals. As the report notes, “There can be a lot of synergies in a good partnership,” and we’ve seen firsthand how aligning with complementary sponsors can de-risk transactions and strengthen our appeal to capital providers.

Our deal-sourcing strategy also aligns with the report’s insights. Boutique investment banks and business brokers—cited by 73% of respondents as top deal sources—are critical to our pipeline. Additionally, our relationships with service providers and company owners have proven invaluable, particularly as we target proprietary opportunities in the healthcare sector.

Economics: Standardization Meets Opportunity

The standardization of independent sponsor economics is another key theme in the report. Closing fees, management fees, and carried interest are no longer the contentious "Wild West" variables they once were. For example, 79% of respondents now calculate closing fees as a percentage of transaction value (typically 2% of enterprise value), and 46% report fees between $251,000 and $500,000. At Tidewater Health Ventures, we’ve benefited from this clarity, enabling us to structure deals that align interests with our capital partners while sustaining our operations.

On equity contributions, 73% of respondents are required to contribute capital—a figure up from 61% in 2019. We view this as a strength of the model. By rolling fees or contributing our own funds (81% of respondents do so), we demonstrate skin in the game, fostering trust with our investors. As Michael Kornman of Align Collaborate notes, “Alignment of interests is a critical feature of the independent sponsor model and one of the reasons why we believe it works so well.”

Looking Ahead: Resilience in Uncertainty

The 2024 Report offers a mixed outlook for the next 18 months, with high interest rates and economic uncertainty weighing on valuations and deal flow. Yet, we see this as an opportunity. As one respondent put it, “Independent sponsors continue to unlock hidden value using creativity and persistence.” At Tidewater Health Ventures, our lack of pressure to deploy capital or exit on a rigid timeline allows us to thrive in challenging environments—whether by patiently nurturing portfolio companies or capitalizing on distressed opportunities.

Demographic tailwinds also bolster our optimism. With baby boomers set to transfer $90 trillion in wealth over the next decade, many healthcare business owners will seek exits. As Doug Song of Prodos Capital observes, “Independent sponsors are well-poised to take advantage of that.” We couldn’t agree more.

A Bright Future for Tidewater Health Ventures

The 2024 Independent Sponsor Report confirms that our asset class has momentum. At Tidewater Health Ventures, we’re committed to building on this foundation—delivering value to our portfolio companies, investors, and the healthcare ecosystem. As Brian Kerr of Clairemont Capital Group states, “There is real value in having a smaller portfolio led by an independent sponsor who has the time and focus to make sure their investments are successful.” That’s the Tidewater way.

To learn more about how we’re shaping the future of healthcare investing, visit us at tidewaterhealthventures.com.