From the Forum Floor: Five Deal Trends Every Independent Sponsor Should Know

Katten’s M&A and Private Equity practice has long served as trusted counsel to independent sponsors and a variety of capital providers, guiding clients from the early letter of intent (LOI), capital raising and deal sourcing stages through acquisitions, financings, exits and post-closing matters. At the 2026 iGlobal Independent Sponsor Forum, our team spoke with independent sponsors, capital providers, lenders and insurers about what is shaping deals today. Five themes stood out.

1. Digital Feeders and Investor Syndicates: Broader Reach, New Responsibilities

We’ve all seen it: two days before closing, one of your investors drops out. Instead of turning to an anchor investor or other co-investors to increase their commitments, sponsors are increasingly turning to digital feeder platforms and investor syndicates to fill equity holes. These tools aggregate smaller investors, speed up fundraising and expand a sponsor’s investor network.

Pros: Faster fundraising, diversified investor base, reduced dependence on one equity partner and streamlined administration through platform management.

Cons: More complex cap tables, securities law and investor-eligibility compliance issues, not knowing who you are doing business with, platform/placement fees that erode deal economics, and loss of negotiating power as pressure to close increases.

Takeaway: Negotiate governance, reporting and consent rights up front, confirm platform/placement costs are reasonable given the commitment size and confirm enhanced due diligence into beneficial owners. Consider other valuation gap-fillers such as earnouts [FLAG – NO GUIDANCE: spelling could not be confirmed in Merriam-Webster], rollover equity, deferred compensation, seller financing or non-economic deal concessions.

2. Earnouts: Bridging Valuation Gaps Without Burning the Bridge

Earnouts remain a popular tool for closing valuation gaps, but they are also one of the most frequent sources of post-closing litigation. Common pitfalls include vague metrics, disagreements over accounting methodology, disputes about the buyer’s operating discretion and poor post-closing integration affecting platform performance.

Recommendations: Define metrics precisely and objectively; determine who decides achievement in the event of a disagreement (i.e., specified independent accountant / arbitrator).

Takeaway: Simpler, shorter earnouts tend to produce fewer disputes. Establish agreed-upon dispute resolution mechanics in the purchase agreement to avoid costly litigation.

3. AI in Deal Work: Lower Costs at What Cost?

Sponsors are pressing advisors to use AI to reduce transaction expenses. Used well, AI tools can accelerate due diligence review, summarize contracts, prepare issues lists, assist in disclosure schedule preparation and even draft certain documents.

Pros: Faster turnaround, lower fees for high-volume review tasks and more attorney time devoted to judgment-driven negotiation.

Cons: Risk of inaccurate or incomplete outputs, confidentiality and data-security concerns, potential privilege questions, and the continued need for experienced attorney review. Attorneys must verify AI output, and responsibility for the work product does not shift to the technology.

Takeaway: Ask advisors how they deploy AI, what security protocols apply and how advisors reflect potential savings in budgets. Consider whether to apportion diligence internally vs. externally for low- vs. high-value diligence items, subject to the takeaways below regarding representations and warranties insurance (RWI) policies.

4. State of the RWI Market

RWI remains a fixture in middle-market deals, but the market has shifted. Insurers report historically high claim payouts, validating the product’s value for buyers but prompting carriers to revisit pricing. Premiums and retentions have risen from the soft-market lows of recent years, and underwriters are conducting deeper scrutiny of buyer diligence, including quality of earnings, tax, financial, cyber, legal and compliance work.

Takeaway: Engage brokers early, build extra time into the deal timeline for underwriting and invest in thorough, well-documented diligence. While AI can offer a shortcut, gaps in due diligence erode underwriter confidence and often translate directly into policy exclusions. While a walk-away deal appeals to many sellers, sellers are rarely entirely off the hook for policy exclusions, fraud and specific indemnities, and many sellers do not appreciate the added cost and enhanced burden of due diligence that they may not recognize immediately at the outset. In cases where sellers have limited bandwidth for due diligence, consider traditional indemnity escrows with appropriately sized baskets/deductibles in lieu of RWI.

5. Increased Borrowing Costs: Bigger Equity Checks, Creative Capital Stacks

Interest rates remain well above the levels many independent sponsors experienced earlier in the decade and continue to rise. Lenders are sizing debt to cash flow and debt-service coverage rather than headline EBITDA multiples, resulting in less senior debt and larger equity checks. Higher financing costs also compress returns, widening the gap between seller price expectations and what buyers can pay. To fill the gap, independent sponsors are getting creative and layering in seller notes, greater rollover amounts, earnouts and preferred equity.

Takeaway: Underwrite to current rates and stress-test debt service under downside scenarios rather than banking on future rate cuts. Engage lenders early to understand realistic leverage and covenant terms before finalizing the LOI. When using seller financing, negotiate subordination, standstill and payment-blockage terms that the senior lender will accept early to avoid issues near closing. Finally, align with capital providers early on how a larger equity check affects sponsor economics, including closing fees, management fees and carried interest.

Looking Ahead

Independent sponsors who anticipate these dynamics and structure capital, purchase agreements and financing accordingly will position themselves to win deals and protect returns. Katten’s private equity/M&A team is ready to help sponsors navigate each stage of the transaction lifecycle. Please reach out to Alex, Thomas or Peter with any questions.