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MEZZANINE DEBT AND THE GOLF CHANNEL

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When I was growing up, we got seven television channels. There were the three major networks of NBC, CBS, and ABC, along with the public PBS. Because we lived in a major metropolitan area, we also had three “local” stations which mostly showed reruns, older movies, and local pro sports. And, of course, it was all free, paid for totally by advertising.

When cable TV came out, it bothered me that I had to pay for it but at least, initially anyway, there were no commercials. As time went on, the number and variety of channels grew and grew until it now seems like every interest, hobby, sport, and political point on the spectrum has its own channel or two, or five. Anyone recall The Puppy Channel that showed 24 hours a day of footage of cute puppies?

Likewise, when I first started working with lower middle market companies there was commercial bank debt and…commercial bank debt. Larger companies could access other types of debt but even those options were limited. Raising external equity for small companies was almost unheard of.

Since then, more options have developed for debt and even for equity. This trend accelerated after the Great Recession of 2008-2010. Today, even in the Covid-19 environment, there are thousands of providers of non-bank debt, debt-like equity, and actual equity to lower middle market companies.

With cable TV, it is sometimes hard to know what is out there since the offerings require effort to find (sifting through hundreds of channels on your on-screen guide) and the quality of what is offered is often bad.

So it can be with sourcing capital. Sources can be hard to identify because they do not have branches on street corners. And, unfortunately, some providers are less scrupulous than others. A private equity group once explained to me that they did not consider opportunities represented by an investment banker because it creates an “inability for us to take advantage of unsophisticated sellers”. Hey, at least they are honest about that.

Prior to sourcing the capital, a knowledgeable investment banker can help a company figure which of the many types of capital make sense for their situation and goals. Like cable, there is financing available to satisfy just about any need. Choosing the wrong one can really mess you up, not just waste thirty minutes of your evening.

If you need capital, please give us a call. We are happy to discuss options for your situation and goals. No monthly subscription necessary….

Robert Rough is a Founder and Managing Director of Telos Capital Advisors, LLC in Dallas, TX. TCA is a middle-market investment banking firm helping business owners achieve their goals through a sale or recapitalization.

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