Mezzanine debt lenders continue to make inroads into the direct lending market with a specific focus on lower middle market companies. Most mezzanine debt lenders focus on buyouts led by private equity groups. In this private equity led deals, often there are big name investment bankers and consultants who bring a wall street style to the deal and talk in an impersonal and overly technical deal-speak.
Closing a leveraged buyout involves a tremendous amount of analysis and observation of all things knowable pertaining to the target company. Certain things such as financial results, systems in use, organizational structure, legal status are easy to discover through a check the box review. Other more nuanced information is available to those willing to dig for it.
Most sponsors see acquisition financing as a functional one-time exercise which culminates in a closed financing. The need to close within a certain time frame creates intense pressure to execute acquisition financing as short-term project.
When independent sponsors go forth to finance their deals, they hew to a standard view on structuring. While they understand and may have even interacted with mezzanine debt lenders, they often do not see how it can unlock value for them. Independent sponsors focus on bank financing and seller notes as the primary components of their capital stack. They try to extend these capital forms to reduce the amount of their equity contribution.
Mezzanine debt is an extremely valuable form of growth capital often used to fund acquisitions or intense growth stages that stretch beyond bank financing limits. It is available to middle market companies with minimum revenue and EBITDA levels of $15 million and $3 million respectively, in loan sizes ranging from $7 million up to $100+ million.