The market for mezzanine financing on the upswing
Mezzanine financing is generally considered for companies that have established themselves sustainably on the market with their business model and products and would like to solidly secure their further growth not exclusively through loans, but through balance sheet-improving funds. Especially when no change in the shareholder structure is desired or possible, but the financing is to have an equity or equity-like effect, mezzanine financing is an attractive suitable financing instrument.
Due to the ongoing interest payments, mezzanine financing is rather unsuitable for companies in the start-up or early stages and for companies in a restructuring situation. Here, direct participation is the “right” financing instrument.
In times of volatile capital markets and low bond interest rates, mezzanine portfolios offer investors a very interesting current yield. However, it is important that mezzanine portfolios are assembled and managed by experienced managers after careful (private equity-like) examination of the individual companies. The stability of the financed companies is the decisive component for investor success.
What companies appreciate most about mezzanine financing is the flexible structuring options (silent partnership, profit participation rights, subordinated capital, etc.), which allow the financing to be tailored to the individual financing occasion, the initial balance sheet situation and the interests of management and shareholders. Next to it is
- the long term of the capital (usually 5 to 7 years),
- granting without the requirement to provide collateral (existing collateral is thus available for other financing, thus increasing the scope for credit creation),
- the preservation of entrepreneurial independence
- and, last but not least, the “quality seal” effect that mezzanine financing has on other financing and market partners is very interesting for companies.
Before the launch and after the expiry of the standard mezzanine programs, the conditions for mezzanine financing proved to be quite “price stable”. I therefore do not expect a proportional increase in terms and conditions even if the general interest rate level rises.