We have worked with Private Equity, Venture Capital and Angel Investors when clients need to augment owner's capital and when historical financial performance is not sufficient to attain other less costly and less dilutive forms of capital.
Equity investors expect what you expect as an owner: back to back to back grand slams. Equity investors would like nothing more than your company to take off and sell for ten or twenty times the value of the stock when they invested.
Preferred equity is a direct equity investment (think partner versus lender) that typically carries a fixed, preferential return that is paid before common equity distributions (dividends) and often limits management compensation until return hurdles have been met.
Recent transactions have ranged from 6% to 12% depending on the stability of cash flow and maturity of the business, among other factors.
Mezzanine Debt or Mezz Debt (or simply Mezz) is more common than Preferred Equity. It is typically secured directly by hard assets and sometimes also secured indirectly by a pledge of the firm’s equity. Mezz also typically carries a fixed, preferential return that is paid before common equity distributions (dividends), is often convertible into equity (or has warrants) and often limits management compensation. Some investors favor Mezz Debt because of the perceived superior claim on hard assets.
Business owners prefer debt because it is typically the lowest cost capital with the least restrictions, though loan covenants and terms can often rival the terms found in other forms of capital when earnings are small or inconsistent. Junior debt is simply secured debt that is in second (or later) position behind the senior secured lender who has first claim on the assets securing the loan.
Recent transactions have seen fixed rates on senior debt as low as the 4% range and variable rates at 200 basis points over LIBOR, so in the low 2% range.
A few capital providers have become creative and will offer a single financing facility that blends elements of senior and junior or Mezz debt into one instrument.
We have decades of experience working with capital providers across the spectrum and around the world. We strive to find the right “capital stack” for your business
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