Reach for the Gold: Be Your Own Champion Growth Maker with Mezzanine
Posted on: September 19th, 2016
Middle market companies are firms which have revenues ranging from $20 million to $100 million. Large corporations control the financial markets, whereas small businesses are the life and soul of the American economy.
So how can middle market firms reach for the gold and achieve success? Compared to smaller businesses, a middle market company is better funded to handle difficulties, hire top talent, and fund innovation.
Whereas, compared to larger enterprises, they are deeply connected to their customers, are agile, and still have that entrepreneurial spirit. But in order for a middle market firm to grow, it must resort to mergers or acquisitions.
Mergers and acquisitions fuel growth for middle market companies and helps them to increase revenue, reduce running costs, and increase their market share. But in order to do that a company needs funding.
Funds can be acquired through multiple sources such as equity funding, debt funding, or mezzanine finance. Additionally, it is vital to develop relationships with funding partners to drive acquisition and organic growth over the long term, through follow on financing.
When it comes to funding, mezzanine finance stands out. Mezzanine funding, also known as subordinated debt or junior capital involves a company borrowing against the cash flow value of their business.
With mezzanine finance, a borrower gets more funding than a bank loan which can make a big difference in funding growth. Additionally, a borrower does not have to sell shares to raise mezzanine funding, making it a preferable alternative.
Mezzanine funding can help a middle market firm to become a champion growth maker as it allows greater flexibility as compared to conventional sources of funding. It combines the best elements of debt funding and equity funding.
It improves the cash flow as it does not have amortization; it has a longer maturity period, from 5 to 7 years, whereas senior debt has a shorter maturity period and an extensive amortization schedule.
Middle market companies can effectively utilize the increased cash flow to quickly cover up the costs of mergers and acquisitions and venture into new markets to boost their revenues.
Additionally, no collateral is needed and it can be customized to meet the demands of the company.