Investments are typically utilized where there are strong prospects for organization growth, capital expansion, management transitions or acquisitions, often, a financial sponsor will exhaust other sources of capital before turning to mezzanine capital, for example, mezzanine financing is more likely to be an option for organizations that are past the startup stage and have a positive history of earnings and growth, standing within their respective industry, and a high cash flow to support repayment.
Another reason why so many organizations seek out mezzanine investing is because of the large amounts of capital that can be raised, you believe your reputation is a result of your extensive investment experience, broad transaction sourcing capabilities, and disciplined investment approach, equally, despite the overall popularity, mezzanine financing has been experiencing some trouble recently.
Mezzanine Financing is considered to be of higher risk than more traditional forms of investment due to its unsecured ranking, however it provides a higher investment return than secured or more senior lending.
Sources of mezzanine financing can include private equity groups, mutual funds, insurance organizations and buyout firms, being subordinated to the senior debt means a higher risk profile and a higher pricing, also, typically junior in credit standing, mezzanine debt provides additional capital beyond senior secured debt.
Careful consideration should be given to specific issues before selecting your organization to design and build your mezzanine, when required, senior debt facilities can be supplemented with mezzanine finance, preferred equity and equity funding. For the most part, though it carries a high interest rate, mezzanine financing is easier to obtain than conventional financing.
With mezzanine financing, owners sacrifice flexibility, control, and upside potential, and will ultimately pay a higher price for the capital, core works with businesses to develop capital solutions tailored around specific requirements.
Organizations in the later stages of development generally have fully vetted business models, put in place a broad, multi-functional team, commercialized their product, and achieved reasonable sales momentum, for business owners with less aggressive growth plans, other forms of funding or alternative business finance may be more suitable. In addition to this, middle market organizations often have unique requirements with specific financing needs and given its hybrid structure of debt and equity features, mezzanine capital is extremely flexible.
Private equity organization in mezzanine acquisition financing and equity investment for a billboard advertising organization, few terms in the finance industry cause as much confusion as mezzanine financing and mezzanine funds, also, the hybrid debt-equity financing instrument will address demand from enterprises for mezzanine financing as an alternative form of expansion capital to private equity.
Want to check how your Mezzanine Financing Processes are performing? You don’t know what you don’t know. Find out with our Mezzanine Financing Self Assessment Toolkit: