Attract Capital :: Private Equity and Mezzanine Debt Basics

Mezzanine Debt as Growth Capital

Mezzanine Debt as
Growth Capital

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Step 1: Learning the Basics

Private Equity and Mezzanine Debt Basics

Step 2: Designing the Right
Structure

Optimize the Mezzanine Debt Structure

Step 3: Preparing Your Business Plan

Build a World Class, Growth Based Plan

Step 4: Attracting Mezzanine Lenders

Leverage Our Relationships

Step 5: Closing the Deal

Continuous Project Management and Advisory Services

Testimonials

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Structured Mezzanine debt solutions deliver

STEP 1:

Private Equity and Mezzanine Debt Basics

The private equity market values companies on the basis of a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). To assist you with the basics of most private equity deals, let's use a "three layer cake" analogy consisting of senior debt, mezzanine debt and equity.

This structure is the most commonly used in the private equity world. This structure is generally used in a leveraged buy-out or a change in control transaction because it allows the equity provider to leverage his down payment to purchase the target company. As you will see, each layer is different and has its own unique characteristics and each layer has its own risk/reward profile.

Layer 1 - Senior Debt - Low risk, low cost, short term, least flexible.
Layer 2 - Mezzanine Debt - Moderate risk, moderate cost, long term, flexible.
Layer 3 - Equity - High risk, high cost, long term, most flexible

Just because a 3 layer cake structure is the most common structure does not mean that it is the only structure that can be used.

Each layer of capital can be used on its own or in conjunction with other layers in varying degress for any given transaction.

There is no rule that requires equity to be used in every transaction nor is there a rule that requires senior debt or mezzanine debt to be used in every transaction.

Each of these layers has advantages and disadvantages and can be mixed and matched to fit the unique needs of each business.

Through understanding these basic rules and structuring technology, we are able to help business owners design optimized structures which meet their needs as opposed to the needs of the private equity investor. Instead of using the traditional three layer cake structure which can be expensive and complicated, Attract Capital has created a streamlined, two layer cake structure. This structure provides flexible, long term capital at a significant discount to the 3 layer cake structure.

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