Private equity sponsors are increasingly spending time on governance planning well before launching an initial public offering, seeking to retain influence over portfolio companies after listing while adopting structures public market investors are well-disposed to accept, according to Freshfields partners Jackie Marino and Ian Bushner.

Far from treating governance as a legal exercise shortly before filing, sponsors are increasingly determining ownership thresholds as well as shareholder agreements and board arrangements at the outset of an IPO process because those decisions will govern their relationship with the company throughout their eventual exit.

“It is a theme of control,” capital markets partner Marino said. “In many cases, the sponsor is holding on to a significant portion of the company even after the IPO, and the governance structures put in place at listing will stay with them through their sell-downs.

“Getting the ownership thresholds and sunset provisions right at the outset is a consequential decision for the lifetime of the investment.”

Freshfields’ review of 86 US sponsor-backed IPOs completed between 2021 and 2025 shows widespread use of those governance arrangements.

Ninety percent of companies remained controlled companies after listing, while 87% granted sponsors contractual rights to nominate directors, according to their review. Of those, 77% entitled sponsors to designate a majority or supermajority of the board.

Marino said the findings point less to a move toward greater control than the evolution of sponsor-backed IPOs from discrete exit events into one stage of a longer ownership cycle.

As sponsors continue to hold significant stakes after listing and monetize investments through successive sell-downs, governance structures are increasingly being designed around that reality.

Repeat issuers are returning to governance arrangements negotiated in earlier IPOs, while advisers are benchmarking what institutional investors and underwriters are prepared to support when marketing a deal.

“There is a fairly well-worn path when it comes to these governance structures,” Marino said. “Market practice has established a clear reference point for what is within the realm of things sponsors can negotiate and what investors will accept when the book is being built.”

The findings should not be interpreted simply as sponsors seeking the broadest possible control. Instead, governance rights generally mirror the size of the ownership stake sponsors expect to retain after listing, she said.

“If you continue to own 50% or 60% of the company after the IPO, it makes sense that you’re going to want to have a meaningful say and maintain some control during the time that you hold that position,” Marino said.

“As the sponsor sells down, those control rights decrease commensurate with their ownership.”

Bushner, Freshfields’ head of US private capital, argued that sponsors are increasingly selective about where those rights matter.

“Sponsors don’t just ask for control on every aspect,” Bushner said. “They’re very sophisticated and thoughtful about where and how they want control.”

Although controlled companies are exempt from several exchange governance requirements, 58% nevertheless listed with majority-independent boards, while 95% established compensation committees and 90% established nominating and governance committees despite not being required to do so, according to their research.

At the same time, 47% of companies with shareholder agreements granted sponsors consent or veto rights over significant corporate actions, including acquisitions, change-of-control transactions, and amendments to constitutional documents.

According to Bushner, sponsors increasingly distinguish between governance provisions public investors care about and contractual rights that protect their economic interests.

“They actually give up more control than they’re required to under the listing rules,” Bushner said. “But they keep control on the key things they care about, like exits and strategic decisions.”

Both lawyers said sponsors increasingly benchmark governance arrangements against previous transactions and investor expectations.

Sponsors frequently ask advisers what has become market practice and where precedent sits before deciding how far to push governance provisions, while underwriters assess whether proposed structures are likely to become issues during bookbuilding.

“Sponsors want to know where the fairway is and often want to make sure they are in it or are deliberate about where they are outside of it,” Bushner said.

Marino said repeat issuers often begin new IPO processes by reviewing governance arrangements negotiated on previous portfolio company listings.

While there is no single template, earlier transactions frequently become the starting point for discussions.

“There are differences around the edges, but it varies deal to deal,” Marino said. “There’s no set playbook. There’s room for negotiation depending on ownership, the company’s profile and investor appetite.”

The process has also evolved as more mid-market private equity firms bring companies to the public markets for the first time, Bushner added.

More and more firms recruit professionals with equity capital markets experience or employees from larger sponsors, allowing knowledge developed through previous IPOs to spread across the industry.

One recurring feature is that governance rights generally evolve alongside ownership. Rather than remaining permanent, board nomination rights, shareholder protections, and other contractual rights typically reduce as sponsors sell down their holdings.

“The governance framework is deliberately two-phased. The first phase is built around the sponsor’s needs while their ownership is above a certain threshold. The second phase transitions to a more standard public company governance structure as sell-downs happen and the sponsor is no longer a controlling shareholder.”