Mezzanine finance is a type of financing that combines elements of debt and equity. It typically involves providing a company with a subordinated debt instrument that has a higher yield than traditional debt, as well as an equity component such as warrants or options.

Mezzanine finance is often used to finance growth initiatives, such as mergers and acquisitions, capital expenditures, or working capital needs. It can be an attractive option for companies that may not be able to secure traditional debt financing, or for those that want to minimize dilution of existing shareholders.

One of the key features of mezzanine finance is its subordinated nature. This means that in the event of a default or bankruptcy, mezzanine finance providers are paid after traditional senior lenders but before equity investors. This risk profile means that mezzanine finance providers typically require a higher return than senior lenders.

Mezzanine finance can take many forms, including:

Subordinated debt: This is a type of debt that is subordinate to other debt in the capital structure, meaning that it is paid after senior debt in the event of a default or bankruptcy.

Convertible debt: This is a type of debt that can be converted into equity at a later date, typically at a predetermined price or formula.

Preferred equity: This is a type of equity that has preference over common equity in terms of payment of dividends or distribution of assets in the event of a liquidation or sale.

Warrants or options: These are instruments that give the holder the right to purchase equity in the company at a future date at a predetermined price.

Overall, mezzanine finance can be an attractive option for companies looking to finance growth initiatives while minimizing dilution of existing shareholders. It can also be an attractive option for investors seeking higher yields than traditional debt investments, but who are willing to accept a higher level of risk.

Selecting a mezzanine finance provider requires careful consideration of several key factors. Here are some of the steps a chairman might take to select a mezzanine finance provider:

Determine the company’s financing needs: Before selecting a mezzanine finance provider, the chairman should first determine the company’s financing needs, including the amount of capital required, the expected use of funds, and the timeline for deployment.

Identify potential mezzanine finance providers: Once the company’s financing needs are identified, the chairman can begin to research potential mezzanine finance providers. This may involve speaking with investment bankers, brokers, and other industry contacts, as well as conducting online research.

Evaluate the reputation and experience of potential mezzanine finance providers: The chairman should evaluate the reputation and experience of potential mezzanine finance providers by reviewing their track record, client references, and industry reputation. It is important to select a provider with a strong track record of successful mezzanine financings and a deep understanding of the industry and market.

Review terms and pricing: The chairman should review the terms and pricing offered by potential mezzanine finance providers, including the interest rate, fees, repayment terms, and covenants. It is important to negotiate favourable terms that align with the company’s financing needs and goals.

Assess fit and compatibility: The chairman should assess the fit and compatibility of potential mezzanine finance providers with the company’s culture, strategy, and goals. It is important to select a provider that shares the company’s vision and can provide value beyond just financing.

Make a selection: After evaluating potential mezzanine finance providers on these criteria, the chairman can make a selection. This may involve negotiating final terms and executing a financing agreement.

Overall, selecting a mezzanine finance provider requires careful evaluation of several key factors, including the provider’s reputation, experience, terms and pricing, and fit with the company’s culture and goals. By following a structured selection process, the chairman can identify a provider that can provide the financing and support needed to drive the company’s growth and success.


Investec Bank offers mezzanine lending as part of its suite of corporate finance solutions. Investec’s mezzanine finance team provides flexible capital solutions to support private equity transactions, management buyouts, acquisition financing, and growth capital for mid-sized companies in the UK and Europe.

Investec’s mezzanine lending product typically sits between senior debt and equity, and is tailored to meet the specific needs of each client. The bank’s mezzanine finance team works closely with its clients to understand their business, growth plans, and funding requirements, and offers bespoke financing solutions that are structured to suit their needs.

Michael Tait worked with Investec Bank when chairman at Coffee Nation (Now Costa Express). Investec were mezzanine lenders to Coffee Nation. They are a particular good team to work with and Michael Tait wants to recommend them. See the story of Coffee Nation here: Investec Bank site is here: