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Case StudiesMezzanine Capital
Mezzanine capital is a form of financing that is part debt and part equity. It incorporates equity-based options, such as warrants, with a lower-priority debt to provide flexible long-term capital for use in buyouts or growth financings. Frequently unsecured, it usually bears interest at a higher rate than secured loans and often gives the lender a stake in the equity of the company. Mezzanine debt is often used to finance acquisitions, buyouts and accelerated growth. Its repayment profile is often back ended over a 5-to-7-year period.
Mezzanine Capital: A Flexible Bridge Between Debt and Equity
Mezzanine capital is the layer that resides between the senior lender and the equity investor in a capital structure. It is an early form of finance originated in the 1980’s and has evolved in application to include direct lending for corporate acquisitions and growth, outside of the buyout arena. Mezzanine capital can fund strategic transformations such as roll-up acquisitions without any additional equity investment, if the company has sufficient equity valuation. Because mezzanine capital is less expensive than raising equity, it is a better form of capital for founders to build their companies with. It does not dilute the founder in a material way, nor does it take control of the company and usurp major decision making like an equity investor would. It is a valuable form of growth and acquisition capital especially when your bank is unable to advance more due to regulatory restrictions. Many mezzanine capital providers will extend delayed draw term loans for future acquisitions which makes acquisition scaling faster.Frequently Asked Question
Most lenders will lend from 3.25 to 3.75 times the adjusted EBITDA providing a total debt capacity of $32.5 to 37.5 million for your deal.
No, the founder does not provide a personal guarantee.
Yes, we have advised many companies who have done this successfully.
Many clients were able to grow EBITDA 8 to 10 times and still hold 90+% of their shares.
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