The traditional private equity model is changing. More family offices are completing deals directly without the presence of a private equity firm, and there has been an increase in independent sponsors doing deals without the dedicated resources of a traditional PE firm. Recognizing this change, in January, Chicago-based Madison Capital Funding made a conscious effort to start financing deals sourced by non-traditional private equity firms.

The effort is led by Andrew Bucolo, a managing director with Madison Capital Funding. While there is no dedicated team so far, Bucolo is responsible for pursuing opportunities with independent sponsors and family offices. The firm’s origination team also keeps an eye open for these opportunities.

“Creating the initiative was a strategic decision by the team,” says Bucolo. “It’s a sub-segment of the business that is growing. We saw changes in the industry. We would be missing out on opportunities if we didn’t evolve with the industry.” And although these deals aren’t the lender’s bread and butter, Bucolo is seeing plenty of credits to lend against and working with lots of newer independent sponsors and family offices who are looking to invest directly. Since launching the initiative, Madison has reviewed 80 credits and financed five deals. Most of its deal flow comes from previous relationships with private equity professionals who have left institutionalized PE firms to become independent sponsors, or to work for a family office as the investment professional.

“We thought it made sense to put a strategy around working with this segment of the market — given the increasing number of these types of participants,” says Christopher Taylor, a managing director with Madison. “Many of the family offices have hired private equity professionals to help them make direct investments, so they are becoming more sophisticated and requiring more financing solutions like ours.”

The firm has lent on an insurance brokerage deal, health care deal and three general deals totaling $200 million in debt financing. Three of the financings were traditional leverage buyout transactions and two were recap situations.

“We would be remiss to think the composition of the private equity market of the last 10 or 15 years will be the same as the next 15 years. We are cognizant of the need to adapt to changing market forces and demands,” says Taylor.

Financial services industry