For middle market businesses, mezzanine funding is often the easiest and safest way to fund an acquisition. Mezzanine loans are large, flexible, and long term. Often, the loan is repaid at the end of five years which gives the company breathing room and a valuable transition period to invest in its future. Additionally, when properly structured, mezzanine funding can provide 100% of the funding needed and bypasses the need to bring in an investor. Mezzanine funding eliminates capital access as a barrier to a company’s long term growth. Patience, expertise and focus are required to successfully raise mezzanine funding. Most mezzanine debt raises conform to the following five stages:

Prepare your financial statements – Mezzanine lenders require strong financial performance and clean financial statements. They will review and analyze financial information during due diligence so pre-deal cleanup is important.
Develop the best version of your company for presentation– Lenders need to see a well-defined business model, a strong growth plan and a complete management team. The presentation should be high quality and professional.
Develop a large universe of mezzanine lender contacts – Mezzanine funding criteria varies based on a whole host of factors including loan size, industry, historical financials, and use of the proceeds. It is important to research and screen lenders that are a good match for your deal.
Develop a high quality confidential information memorandum – This must clearly articulate your need for capital and your growth strategy in a professional and financially-based manner.
Engage the Capital Sources through an advisory relationship – add a mezzanine debt expert to your team and have them execute their process. Advisors know where the market is and can help you find the right lender and the right structure.

These 5 steps, while far from comprehensive, will help you plan this process and increase your likelihood of success. Mezzanine lenders need to see both financial strength and dynamic growth potential for your business. Their underwriting approach is based on the verifying the cash flow stability, which makes it all the more critical that they understand the key strengths and market differentiators of your business.

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.

The 5 Key Stages Of Preparing for a Mezzanine Funding Raise

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