Members of management within a company are the strategists of the company. They decide how to get the job done as efficiently as possible. The problem is that management is at the mercy of the stockholders and sometimes the stockholders do not agree with management on how to complete certain business ventures.
One option is for the management to engage in a management buy-out/buy-in. This is where the management buys out the stockholders so that they are in control of the company. Management does not have the type of collateral needed to be put forth for an equity or bank loan for the funding.
They would have to put up their personal wealth in order to source the loans. The solution to the problem of where to get capital comes from mezzanine financing for management buy-outs/buy-ins.
Mezzanine financing for management buy-outs/buy-ins is the perfect fit because mezzanine financing is a cash flow based way of lending. With mezzanine financing for management buy-outs/buy-ins the management are evaluated based on the company’s cash flow, not the company’s assets or management’s personal wealth.
Mezzanine financing for management buy-outs/buy-ins is a great opportunity because of the fact that management would not need to give up a large equity stake in order to receive the loan. Mezzanine financing also provides the management with a complete financing of the purchase.
If any investment is required by the management, the amount is usually a small percentage of the total amount of capital needed to close the deal. Mezzanine financing for management buy-outs/buy-ins is a perfect fit when it comes to management buy-outs because it allows management to receive funding just based on how the company’s cash flow is and will be performing.
This is a preferable approach to the management team being evaluated monetarily and being required to present their own forms of collateral and own capital from their personal wealth.