Mezzanine Debt – The Nick Foles of Acquisition Funding

Posted on: January 16th, 2019

Nick Foles of Acquisition Funding Nick Foles is a transformational quarterback who time and time again delivers victories against all odds. His play has galvanized a city and its fans, which in turn fuels his performance and his ability to inspire his teammates to go great things. This cycle of positive reinforcement is not unlike the type of support a company needs to pursue acquisition growth.

Often businesses fall into the rut of thinking they really cannot do acquisitions or engage in hyper growth because they lack sources of funding. Growth takes Foles-like inspiration and most business owners get little to no inspiration from their local banks who peddle only collateral-based, conservative loans. Businesses need Folesian loan structures not Lilliputian loan sizes to succeed at acquisition scale ups.

Many middle market business owners subscribe to a slow, single digit growth rate, because they really don’t have the funding to support faster acquisition growth. They’ve been able to get a collateral based bank loan, and this type of loan becomes their funding reality around which they conform their business growth expectations.

This reinforces a slow, growth mindset which is perfectly acceptable for certain phases, but not as a long-term default position. Companies need to go through growth spurts or scale-ups as they mature. The decision to grow faster, often pursued discretionarily, should be a strategic mandate. The trick is getting the right type of funding to unleash your inner acquisition game.

Mezzanine lenders provide critical Folesian ingredients needed for you to win on your acquisition gridiron. Here are the 5 reasons why a mezzanine lender can provide Nick Foles-type lift for your next acquisition win:

High level thinking – Mezzanine lenders are both experienced and smart. Their review and acceptance of your loan will give you more confidence to matriculate your acquisition. Most have been through dozens of similar acquisitions and can bring these insights into your game preparation.
Operational Focus – Mezzanine lenders focus on critical aspects of your business such as systems strength and management depth. They double check to ensure you have the resources needed go down the field with the acquisition.
Strong Faith in Management – Mezzanine lenders only lend to great management teams that have a complete team than can play 60 minutes. Throughout the duration of the relationship, they try to their best to coach and support you.
Financial discipline – Mezzanine lenders analyze your numbers, like a stats sheet, to identify how and where you are making money. This helps you emphasize high value offensive moves in your operational playbook.
Focus on Winning – The business of mezzanine lending is itself a risky one, with slim margin for error. Most successful mezzanine lenders have developed superior practices to identifying and assisting companies get in the end zone.

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.