3 questions to smart minds

Options in mezzanine financing

For this 3 questions to Ole Klose

Lampe Capi­tal Finance GmbH
Photo: Ole Klose
17. Febru­ary 2016

Mezza­nine finan­cing refers to forms of capi­tal that lie between equity and debt in terms of their charac­ter, i.e. in some circum­s­tances they combine features of both. Mezza­nine provi­ders can be venture capi­tal compa­nies, banks, insu­rance compa­nies, private inves­tors or mezza­nine funds. Inves­tors bear a higher risk than debt inves­tors and can ther­e­fore expect a higher return than the latter. The return on finan­cing with mezza­nine capi­tal is between 10 and 30 percent, depen­ding on the terms and conditions. 

For this 3 ques­ti­ons to Mana­ging Direc­tor of Lampe Capi­tal Finance GmbH in Düssel­dorf, which belongs to Bank­haus Lampe

1. Bank­haus Lampe laun­ched its first mezza­nine fund with a volume of approx. 72 million euros. closed. What is the compo­si­tion of your inves­tors? Have you alre­ady made invest­ments? If so, in which sectors?

Lampe Capi­tal Finance GmbH, a subsi­diary of Bank­haus Lampe KG, has laun­ched Lampe Mezza­nine Fonds I, a closed-end invest­ment fund in accordance with the German Invest­ment Code (KAGB). Bank­haus Lampe itself inves­ted EUR 10 million as a spon­sor. The remai­ning thir­teen inves­tors are insu­rance compa­nies, pension funds, family offices and inves­tors from the church sector.

The fund is suita­ble for all types of insti­tu­tio­nal inves­tors as it offers an attrac­tive risk-adjus­ted return, has no corre­la­tion to other asset clas­ses and pays ongo­ing distri­bu­ti­ons. This week we are subscrib­ing to our fourth invest­ment and have thus allo­ca­ted around EUR 20 million of the volume. The compa­nies were carefully selec­ted from more than 150 invest­ment oppor­tu­ni­ties and come from the guardrail/road cons­truc­tion, medi­cal and indus­trial tech­no­logy, and IT/software solu­ti­ons sectors.

2. Which invest­ments are inte­res­t­ing for you? In what order of magni­tude do you invest?

Target compa­nies should have sales of at least EUR 30 million and a five-year company history. In addi­tion to an appro­priate equity ratio, sustainable, stable profi­ta­bi­lity and posi­tive opera­ting cash flows should have been achie­ved in the last 3 finan­cial years, which will also lead to suffi­ci­ent debt service capa­bi­lity in the future. — Key quali­ta­tive crite­ria are convin­cing manage­ment without so-called “key man” risks, a viable busi­ness model and a solid market posi­tion. In addi­tion, a clear corpo­rate stra­tegy and sustainable posi­tive deve­lo­p­ment pros­pects should be evident. Our focus is on German small and medium-sized enterprises.

The target size for our mezza­nine invest­ments is between EUR 3 — 10 million per company; we realize larger indi­vi­dual tickets with co-invest­ments by custo­mers of Bank­haus Lampe KG. The advan­tage for the target compa­nies is that, with us as fund mana­ger, there is only one cont­act person.

3. What are the terms and condi­ti­ons for a mezza­nine invest­ment? Which compa­nies are eligi­ble for mezza­nine and why should they get it from you?

Mezza­nine invest­ments are gene­rally struc­tu­red as equity-like funds with matu­ri­ties of between five and seven years. Typi­cal instru­ments are silent part­ner­ships or profit parti­ci­pa­tion rights. The inte­rest claim lies between the condi­ti­ons of long-term loans and the expec­ta­ti­ons of mino­rity direct invest­ments. Compen­sa­tion regu­larly consists of a fixed and a varia­ble compo­nent, often supple­men­ted by an equity kicker. They vary depen­ding on the design of the risk para­me­ters; in total, howe­ver, they are in double digits.

Mezza­nine finance is parti­cu­larly suita­ble for compa­nies that want to streng­then their growth or expan­sion orga­ni­cally or through acqui­si­ti­ons. To do this, they need equity-like funds, at least tempo­r­a­rily, but do not want to give up any shares in the busi­ness. Other typi­cal occa­si­ons are company succes­si­ons or the reor­ga­niza­tion of the share­hol­der struc­ture, and occa­sio­nally also reca­pi­ta­liza­ti­ons for asset diver­si­fi­ca­tion of entre­pre­neu­rial families.
Our invest­ments are indi­vi­du­ally tail­o­red to the needs of each company. Bank­haus Lampe is part of the Oetker Group and has an indus­trial back­ground. We are deeply rooted in the German SME sector. The invest­ment team also has many years of expe­ri­ence in medium-sized invest­ment, capi­tal market and corpo­rate client busi­ness, enab­ling us to provide ideal support to compa­nies. Espe­ci­ally in complex situa­tions that are not stan­dard, we are the right contact.

About Ole Klose
Ole Klose has exten­sive expe­ri­ence in turn­around manage­ment, restruc­tu­ring, invest­ment banking and private equity. He worked for the Treu­hand­an­stalt in the early 1990s, later for Bank­ge­sell­schaft Berlin and since 2002 for Bank­haus Lampe KG. In the course of his acti­vi­ties for Bank­haus Lampe KG and Lampe Betei­li­gungs­ge­sell­schaft mbH, Ole Klose successfully ente­red into nume­rous invest­ments, e.g. in Vapiano SE, for Bank­haus Lampe KG. Ole Klose studied busi­ness admi­nis­tra­tion at the Univer­sity of Hamburg, gradua­ting with a degree in busi­ness administration.

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