Expansion capital with a long-term perspective

Your company is flourishing and growing. It is time to take the next step, but the financing is rather more difficult than you had thought. Ultimately, you want to retain control over your company and you are aiming for stable, long-term growth.

We will support you in finding the optimal financing for your purposes and ensure that the necessary liquidity is available.

Exploring the possibilities

Since Basel III it has become more difficult to obtain capital for the acquisitions of companies or company shares, or to finance company expansion. Even if you seem to have exhausted the possibilities of financing through bank, we can procure the required capital for you with new financing models and the right investors. There are plenty of options.

Strengthening your equity

We can strengthen your company’s equity position, for example, by means of special growth funds. If necessary, we will find investors, who are interested in sustainable development of your company, but who don’t interfere with the daily business. With freshly improved equity position, it is easier to negotiate with banks – a task we are also happy to overtake on your behalf.

Retaining control

We find the optimal financing for you and only get those partners on board (on a temporary basis), who will support, promote, and advance your company. You retain full control over your company at all times. With our help, you are guaranteed to achieve faster and better results than if you were on your own.

What is mezzanine capital?

Mezzanine capital is a flexible financing instrument, which is a hybrid of equity and debt. A mezzanine lender provides the company with the necessary capital, mostly in the form of equity, and in return receives fixed or variable interest rates.

In the balance sheet it is classified as equity. This improves financial standing of the company and ensures that better credit terms are obtained from the bank.

The most important features

  • Mezzanine capital is a hybrid of debt and equity and appears in the balance sheet as equity
  • For companies with capital need from 1 M to 10 M euros
  • Provision of capital for 3-10 years
  • Flexible arrangement of interest and repayment
  • Profit-related interest
  • Non-cancellable by mezzanine donor
  • Mezzanine lender requires no collateral

Who could be potentially interested in mezzanine capital?

Mezzanine capital is particularly suitable for medium-sized companies that would like to grow, but, at the same time, are well positioned and possess positive operating cash flow. In principle, mezzanine capital can be used in all industries, but it is particularly suited to the manufacturing sector. Motives for receiving mezzanine capital can be various, such as forthcoming expansion or a planned acquisition. It can, however, also be used during the times of restructuring of finances, change of partners, company transfers, management buy-outs, among other situations.

In short

  • Mezzanine capital is advantageous in capital-intensive expansion periods
  • Improves medium-term liquidity
  • Allows to improve the company’s long-term equity position
  • Simplifies financing rounds through bank loans

What does mezzanine capital provider need to consider?

A mezzanine lender incurs relatively high risk, as no collateral is required. The costs of this type of financing can, therefore, (depending on the initial position) be considerably high. To minimize the risk, the mezzanine lender carefully assesses the company and the quality of the expansion project. He considers business model, parties involved, market position, environment, market entry barriers, cash flow, sales growth, expansion planning, potential for sales growth, etc. Only after a detailed examination, he decides whether to invest in the company.

What is the process of mezzanine financing like?

If mezzanine financing is supported by competent advisors, it can be carried out in a relatively short time. At Pallas Capital, for example, coordinated transactions are usually executed within three months.

The four key phases in the financing process are:

Initial contact

Search for prospective investors is carried out, followed by initial talks, signing of confidentiality agreements, presentation of companies and management, as well as company visits.

Company analysis

The company is reviewed by lenders of mezzanine capital from the technical, economic, fiscal and legal points of view.

Initial analysis

Financial statements and plans are reviewed, market analysis is carried out. This leads to a non-binding initial offer, where in the Termsheet the key features of future contact are outlined.

Negotiations

Draft contract and negotiations follow, based on data from the initial analysis. What comes next is signing, closing, and completion of the transaction. The money flows and the entrepreneur can realize his plans.

What support we offer

Strengthening equity

We strengthen your company’s equity position by means of special growth funds. If necessary, we will find investors, who are interested in sustainable development of your company, however, don’t interfere with its operation.

Keeping it under control

We find the optimal financing for you and take only those partners on board, who support, promote, and advance your business. You will retain full control over your company at all times. With our help, you are guaranteed to achieve faster and better results than (if you were) on your own.

Brief summary of mezzanine capital

Mezzanine capital is generally used by companies which are in growth or expansion phase, or to finance change of ownership. This type of funding, therefore, focuses on established companies. A mezzanine lender assesses the company position more thoroughly than a traditional credit provider, however, remains on board even in turbulent times. He shares the risk and also participates in the success, however, without interfering in daily business. Through the subordination (Durch die Nachrangigkeit des geliehenen Kapitals?) of borrowed capital in case of bankruptcy, the negotiating position with banks improves. It is a smart tool of financing a company’s growth.

Contact

PALLAS CAPITAL Advisory AG
Schottenring 16,
1010 Vienna, Austria

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