Building Corporate Growth Muscle With Mezzanine Debt

Posted on: January 5th, 2022

mezzanine debt

Corporate growth for middle market companies is a heavy lift. Most family owned, middle market companies’ level out at a certain growth rate once they reach maturity. To take a business from $20 million in revenue to $50 million in revenue requires a high-level business transformation expertise and corporate growth muscle. The transformation expertise maps out the vision for the growth journey. Corporate growth muscle are the processes and resources that actually deliver the growth.

Businesses often mistake the importance of the transformation expertise, which is why so many business transformations go awry. Without the underlying muscle which supports the scaling, there is little chance of a success. Cash flow-based financing structures such as mezzanine debt are part of corporate muscle fiber in several valuable ways. They enable full, not partial, investment of the growth plan thereby giving more impact and momentum to the new scaling.

They even offer accordion structures which allow the borrower to access more capital at a later day to support future needs. They have relaxed repayment allowing the business more time to repay the loan which in turn gives them more performance flexibility. They bring knowledge as to the platform readiness which enables the business to improve their infrastructure ahead of the growth journey. Mezzanine debt lenders also bring a financial reporting professionalism to their borrowers ensuring a financial performance awareness.

The goal of the mezzanine debt lender is to help the borrower navigate the growth in supportive and nurturing way. To this end, mezzanine debt lenders not only provide the financial muscle but also operational guideposts as to growth journey success. There are other lender options at lower prices that may be able to fund your need. Few will offer the benefits of both capital and relationship support muscle needed to carry the load.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.