The Correct Deal-Speak for Mezzanine Debt Lenders

Posted on: November 28th, 2022

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Mezzanine debt lenders continue to make inroads into the direct lending market with a specific focus on lower middle market companies. Most mezzanine debt lenders focus on buyouts led by private equity groups. In this private equity led deals, often there are big name investment bankers and consultants who bring a wall street style to the deal and talk in an impersonal and overly technical deal-speak. This may be the lingua franca for private equity buyout deals but this type of deal-speak is a non-starter for direct lending deals in the middle market.

When a middle market mezzanine debt lender starts using this deal-speak with technical and acronymized words, most management teams don’t get it and just tune out. Deal-speak sends the wrong signal to borrowers, and smacks of a lofty, theoretical vantage point that most management teams see as elitist. Though it may be completely unintentional on the part of the mezzanine debt lender, deal-speak is not the winning approach in a direct lending situation. Middle market companies operate at a more grass roots, pragmatic level of business than lenders. They have real problems related to specific issues such as products, customers and staffing. They often lack the time and bandwidth to have a theoretical perspective because they are too busy running the business and putting out fires.

For these companies, the correct deal-speak is one rooted in a common touch and pragmatism, not big fancy words and technical jargon. In direct lending situations, first and foremost, management teams need to be able to identify with you and feel comfortable with you before they decide to do business with you. They need to build up an emotional connection based on their perception of your ability to relate to them and understand their situation. Your ability to properly assess them and understand them for who they are and where they are is paramount to achieving this connection. Using easy-to-understand words, showing genuine interest, using personal story telling, and establishing commonality are the basis of correct deal-speak for mezzanine debt lenders in the middle market.

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.

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