Merit Capital Partners
Middle-market companies frequently reach a point in their existence when their owners have differing investment objectives and liquidity needs. Regardless of whether the company is owned by institutional investors, other third-party outsiders, families, or operating managers, it is not unusual for some shareholders to seek liquidity for their investments prior to others. Similarly, it is not unusual for shareholders whose value has meaningfully increased to seek a significant distribution for lifestyle, estate planning, or other purposes, while continuing to own and operate a business going forward.

Mezzanine capital can play a valuable role in achieving all types of shareholder liquidity needs. Key benefits of using mezzanine debt to achieve shareholder liquidity include the following:

  • Selling shareholders have the opportunity to cash out of their previously illiquid equity holding while the continuing shareholders are provided an opportunity to increase their ownership in the company.
  • Achieving shareholder liquidity by way of a recapitalization rather than the outright sale of the company will avoid subjecting management and other employees to a lengthy, time-intensive sale process where proprietary company information may find its way to competitors.
  • Shareholders staying with the company will have the opportunity to benefit from additional liquidity events over time through future recapitalizations, or the eventual outright sale of the company.
  • Interest payments on subordinated debt are tax deductible, reducing the acquired company‚Äôs tax burden going forward.