The financial markets are awash with Private Equity capital. The arrival of private equity mega funds and hedge funds has started a wave of going private transactions that shows no signs of abating. More capital competing for deals at the high end ultimately results in lower expected returns and hence the need to seek out alternative investments to maintain returns. This is very good news for middle market companies – those ranging in size from $10 million to $100 million because eventually, these large funds will need to diversify their focus and consider smaller deals due to their yield attractiveness. Long term, this should help bring more capital into the middle market and make it a more efficient market. Over the last year, we have noticed that more mezzanine firms seem interested in two layered growth mezzanine structures. Their reasoning is simple as they can usually justify higher yields due to their taking more risk and playing a more active role in the transaction. These mezzanine firms realize that the days of getting paid high returns for providing vanilla, mezzanine debt in someone else’s buy-out deal are over. Ultimately, in order to be successful over the long term, mezzanine debt firms will need to be specialized, and have competitive advantages not unlike those in the companies they fund. Operational knowledge, structuring flexibility, marketing strength and service excellence are the keys we see for mezzanine firms to generate superior returns over the long term. Many of the leading middle market mezzanine firms have already figured this out which allows them to be more creative and value added in their approach. It is these firms, that make great financial partners for middle market companies and Attract Capital clients in particular.