LiveZilla Live Chat Software

Mezzanine Debt Can Help Meet Huge Capital Requirements In M&A

The term, M&A, suggests one of two principles: either the merging of two companies into a separate, new company, or, the buying of one company by another. A good portion of the funding that is needed to complete a merger or acquisition comes from an outside source. Mezzanine debt can be extremely helpful to fulfill the capital requirements needed in a merger and acquisition. Mezzanine debt has recently assumed a more active role as a form of direct lending to companies. Instead of passively funding into private equity-backed buyouts, mezzanine debt providers are seeking companies that have M&A needs that they can fund. By funding a company based on cash flow, mezzanine lenders can meet the capital requirements of acquisitive, middle market companies.

Frequently, mezzanine loans can provide 100% of the funding needed for an acquisition or buyout. Mezzanine lenders assess creditworthiness through stability of the company’s cash flow over time. The loan is viewed as a multiple of the businesses EBITDA, or earnings before interest, taxes, depreciation, and amortization. For example, a multiple of 4 means that the total financing over the EBITDA is equal to 4. This is considered to be high. Market multiples usually range from 2.5 to 4.0 times EBITDA. Moreover, this loan can be used as a senior loan as well if a company wishes to have a one stop lender. Often, in middle market M&A, with smaller deal sizes, it is not worth it to bring in a senior lender for small tranche of debt. Better to have the mezzanine lender provide all of the financing, and have an easier path to the closing table.

A mezzanine lender charges an interest rate and participates in the upside of the company through a warrant. This approach effectively aligns the lender and the company to pursue additional growth and acquisitions, creative a win-win atmosphere.

Another benefit of a mezzanine loan to meet the huge capital requirements in M&A is that mezzanine lenders have a long-term focus. They are patient lenders and allow their borrowers to use the money to transition in a new direction be it an acquisition or new business development. A mezzanine loan is a great solution that assists in providing all-around growth, organic and inorganic, expansion, and prosperity for a company.

What We Offer
  • Corporate Finance Expertise
  • Vast Practical Experience
  • Legendary Customer Service
Latest M&A Industry Updates!
  • Current trends in Lower Middle M&A Market and Middle-market Mezzanine!
Get a Free Consultation!
  • Mezzanine Funding Solutions
  • Advisory Services
  • End-to-end Acquisition Services
Get a Free Consultation

* Fields marked with an asterisk are mandatory

captcha

From Our Blog

Special Recent Posts

Business & Industry Loans – Your Ticket to the Growth Highway

Business & Industry Loans – Your Ticket to the Growth Highway

June 22nd, 2017

The United States Department of Agricult... read more

Merger Ahead? The Importance of Acquisition Financing

Merger Ahead? The Importance of Acquisition Financing

June 20th, 2017

The best laid plans result in successful... read more

When Is It Time To Sell Your Business?

When Is It Time To Sell Your Business?

June 8th, 2017

Every business owner encounters the day ... read more

© 2017 AttractCapital, LLC All Rights Reserved.