Merit Capital Partners: Investment Focus

INVESTMENT FOCUS

Buyouts

Ruud Lighting, Inc.
Peerless Industrial Group
Peak Sulfur, Inc.

Recapitalizations
Acquisition Financing

MANAGEMENT BUYOUTS

Leveraged buyouts have long been utilized as a means to acquire businesses. A leveraged buyout, or LBO, involves the use of borrowed money, in conjunction with equity capital, to finance a change in a company’s ownership. A management buyout is a type of LBO in which the acquiring group is led by the target company’s existing management. Through these transactions, operating management can acquire an ownership stake in the business it runs.

Management teams often turn to equity sponsors for financial backing when they have opportunities to acquire their companies; however, there are many benefits of using mezzanine financing in a management buyout including the following:

Management retains a larger ownership interest in its business by using mezzanine rather than equity.
While equity funds typically require significant majority ownership positions, mezzanine investors are often comfortable with smaller, even minority, ownership stakes.
Mezzanine is typically non-amortizing debt, reducing demands on cash flow and providing management teams with increased flexibility to operate their businesses post-transaction.
Interest payments on subordinated debt are tax deductible reducing the acquired company’s tax burden going forward.