 |
Managers of middle market companies frequently identify
promising opportunities to materially grow their businesses
internally or through acquisitions. Often, however, a
company’s senior lender may be unable to provide sufficient
debt capital to undertake growth opportunities or complete
such an acquisition.
Mezzanine capital can play a valuable role in these
situations. Key benefits of using mezzanine debt to fund
growth projects or finance acquisitions include the
following:
- Mezzanine allows management teams and other existing
owners to secure debt beyond the amount available
through senior sources to complete acquisitions.
- Unlike many senior lenders, mezzanine lenders
typically do not rely on asset values to determine the
amount of capital they will provide. Additionally, they
do not require security or liens on assets, relying
instead on the company’s cash flow to support repayment
over time.
- Financing growth or an acquisition with mezzanine
debt is less dilutive to existing owners than is a
financing using equity. As such, managers and existing
shareholders can maintain more control of the business
post-transaction as a result of the larger ownership
retained.
- Mezzanine is typically non-amortizing debt, reducing
demands on cash flow and providing management teams with
increased flexibility to operate their businesses.
- Interest payments on subordinated debt are tax
deductible reducing the acquired company’s tax burden
going forward.
Merit has provided to acquisition
financing to a number of companies. For further detail on
specific examples, click on the case studies below:
|
