Raising Finance for Growth
Mezzanine Finance
As its name implies Mezzanine Finance sits somewhere between Debt Finance and Equity Finance. It is not uncommonly used where the financial metrics of the fund-raising deal do not fully meet the requirements of the providers of Debt Finance and for any number of reasons Equity Finance is unsuitable (e.g. family owned business or the business is solid but does not offer the sort of growth prospects that an equity investor is seeking).
The providers of Mezzanine Finance are specialists in their field and they will seek to price the equity risk into what would otherwise look like a Debt Finance deal (with an interest rate and regular repayments). Where they are taking what would otherwise be considered to be an ‘equity risk’ they will seek to price this risk into either (or occasionally both) a redemption premium payable at the end of the loan or some form of equity exit return. The latter will often take the form of an equity option or warrant that will provide the additional return necessary to justify the risk that they are taking if/when the company sells.
Mezzanine Finance is more common in property development deals where the developer is unable to fund the gap between the senior (secured debt) and the overall cost of the project; but it is a form of finance that has great potential to be flexible and as such is beginning to become more popular in other deal types.
Jerroms Corporate Finance works with most of the leading players in the mezzanine finance market and can assist you with the development of the business case to approach these fund managers.
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