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Middle-market companies frequently reach a point in their
existence when their owners have differing investment
objectives and liquidity needs. Regardless of whether the
company is owned by institutional investors, other
third-party outsiders, families, or operating managers, it
is not unusual for some shareholders to seek liquidity for
their investments prior to others. Similarly, it is not
unusual for shareholders whose value has meaningfully
increased to seek a significant distribution for lifestyle,
estate planning, or other purposes, while continuing to own
and operate a business going forward.
Mezzanine capital can play a valuable role in achieving all
types of shareholder liquidity needs. Key benefits of using
mezzanine debt to achieve shareholder liquidity include the
following:
- Selling shareholders have the opportunity to cash
out of their previously illiquid equity holding while
the continuing shareholders are provided an opportunity
to increase their ownership in the company.
- Achieving shareholder liquidity by way of a
recapitalization rather than the outright sale of the
company will avoid subjecting management and other
employees to a lengthy, time-intensive sale process
where proprietary company information may find its way
to competitors.
- Shareholders staying with the company will have the
opportunity to benefit from additional liquidity events
over time through future recapitalizations, or the
eventual outright sale of the company.
- Interest payments on subordinated debt are tax
deductible reducing the acquired company’s tax burden
going forward.
Merit has successfully structured and
financed numerous recapitalizations and provided liquidity
for private company shareholders. For further detail on
specific examples, click on the case studies below:
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