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Strategic Funding Advisor
Firm Expertise
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Mezzanine Funding
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Mezzanine Funding
Mezzanine Expertise
Mezzanine Tools
Acquisition Funding
Acquisition Funding Expertise
Advisory
Case Studies
Why Competitive Deals Are Won on Structure, Not Price
Structure signals a buyer’s seriousness and separates the men from the boys. Strong structures such as mezzanine debt term loans communicate seriousness of intent and clarity of action. With structured mezzanine debt, the broker knows you have institutional grade capital behind you and your closing platform is credible.
Where Senior Debt Falls Short in Competitive Processes
Senior debt is nervous capital for a founder-owned company. While banks and other senior debt providers may like the company, they like low-risk deals more and are a bit uncomfortable being the sole provider of capital for a deal. They often lack incentive to compete as vigorously as a buyer needs them to, defaulting to a pass due to policy or industry.
How Mezzanine Debt Bridges the Gap
Mezzanine debt and other structured debt is an elite form of capital. It brings much more to a competitive acquisition situation than a run of the mill bank. Advantages include more capital, focused turnaround, and predictable approval process to name a few. When you need $20 million to close, and a bank can only give you $6 million, mezzanine debt can fill this gap. This is a huge boost of support.
When Mezzanine Debt Becomes a Strategic Advantage
They understand how dynasties are built and the risk you need to take to get there. They provide strategic capital to support your growth, accelerating development and derisking growth pains. Their loan amount and term provide valuable breathing room, allowing full expression of growth creativity and scale.
Trade-Offs: Cost vs Certainty vs Speed
Senior loans may cost less in interest than mezzanine debt, but they cannot do what mezzanine debt does. It is like comparing an apple to an orange. Banks are slow moving, risk averse and cannot write the whole check. Mezzanine debt lenders bring confidence and conviction to the deal. They move quickly and provide all of the capital needed. The certainty of close is materially higher with a mezzanine lender.
Real-World Structuring Scenarios
Mezzanine debt structures are generally a multiple of EBITDA generally 3 to 4 times a company’s adjusted EBITDA. If a company is purchased at 6 times, it is safe to assume you can raise 50% to 66% of the price though mezzanine debt. Company-sponsored acquisitions can use their own EBITDA as well in arriving at the mezzanine debt amount.
Key Considerations Before Using Mezzanine
Mezzanine debt usually charges 14% to 16% and is worth raising if the capital can be put to good use. This means strategic growth associated with M&A or new high-growth avenues. The company must invest the capital wisely and grow much larger in order have the cash flow scale to repay the loan. For this reason, high acquiring or high growth companies are prime candidates for mezzanine debt. Slow growth companies are not a good fit, unless used in buyouts or restructuring.
Final Take: When It Actually Makes Sense
It makes tremendous sense when considering strategic capital raising from a third party. Usually, companies raise equity capital to fund strategic growth; however, mezzanine debt is a great equity alternative. If you are growing in historic fashion to achieve your growth vision, it pays to align with people that have done this before to help you. If you have a strong growth plan, mezzanine debt capital can unleash spectacular growth and will easily pay for itself.
