The Use Of Quasi-Debt Can Get You A Higher Price For Your Business
Quasi-Debt is explained today in an article by David Barnitt:
Quasi debt, whose examples include mezzanine financing or subordinated debt, is defined as a category of debt that has some traits of equity either through an unsecured loan, or via a flexible loan repayment schedule…Firstly, quasi-debt, by filling the gap between debt and equity reflects some of the characteristics of both. To some investors it is more of an equity instrument, whilst to others, it is more of a long term loan. Quasi-debt is a loan that is flexible and which has alignment with long term growth of the borrower.
When can quasi-debt be used? Quasi-debt is most suitable when a bank loan will not provide enough capital or where equity capital is too expensive or dilution. It often bridges the loan structure and the equity structure in a transaction. It is well suited for acquisition financing, growth capital or refinancing needs of middle market companies.
Acquiring firms often use quasi-debt within the structure of the package they put together to acquire a business. However, this rarely happens at lower price points – or the sale of “Main Street” businesses – largely because neither vendor nor buyer have paid corporate finance professionals advising them on the deal.
Dummies covers the types of debt used in M&A deals, but for a more in-depth look at the part that mezzanine finance plays in M&A deals, please visit Stout, Risius and Ross. The opposite side of the coin is represented by this article which examines whether it’s more trouble than it is worth.