Global Dominance Through Mezzanine Debt

An acquisition strategy is a launching pad for companies seeking regional expansion. This is especially true for businesses launching across the Atlantic Ocean from England. Many rapidly growing UK mid-market enterprises see the US market as a prime expansion opportunity for obvious reasons – the market size vs. the size of their home market, the shared language, and the ease of entry.

US Based Mezzanine Debt Providers

Once dominant in the UK, these companies see the opportunity to scale 5 or 6-fold in the US market as irresistible. US based mezzanine debt providers give UK companies tremendous acquisition purchasing power. A former client with turnover of £15 million and EBITDA of £1.0 decide to vertically integrate and acquire their US distributor who was much larger. This acquiring company had a strong market position in the UK. They saw the potential to sell more product in the US through owning their distribution channel.

The acquisition made perfect sense to the lending market, as together these companies would have a globally dominant position. The ability of mezzanine debt lender to appreciate the value of the acquisition and provide all of the funding, contributed to the acquirer achieving a globally dominant position. Despite the acquiring company being relatively small, the mezzanine debt lenders were able to see the intrinsic value of the business combination and make an aggressive loan, that inured to the benefit of the acquirer. Pro forma addbacks also played a critical role in the deal, as the combined actual EBITDA was only $3.2 million. There were $3.0 million in addbacks owing to vendor and G&A efficiencies, resulting in $6.2 million of adjusted EBITDA.

The mezzanine debt lenders were able to gain comfort with the validity of these addbacks. Given the lender’s view of the intrinsic value of the combination, the buyer did not invest additional cash in the deal but rolled over their equity value. As illustrated in this deal, mezzanine debt lenders are a great resource for UK companies acquiring in the US. Their power of strategic discernment allows them to lend aggressively, enabling companies to amass global market share.