Independent Sponsor Mezzanine Debt & Capital Stack in Specialty Distribution
Structuring Mezzanine Debt & Capital Stack on specialty distribution deals, with the structure protection and capital connectivity an independent sponsor actually needs.
An independent sponsor closing specialty distribution transactions in the $10M to $100M EV range has a defined set of moves at the Mezzanine Debt & Capital Stack stage. Most of them are not in a generic M&A textbook.
The typical specialty distribution platform sits at $10M to $100M EV with EBITDA in the $2.5M to $18M range. The thesis runs on vertical buy-up of niche product distributors. Most distribution multiples are wrong by half a turn until the rebate accounting gets normalized.
How Mezzanine Debt & Capital Stack actually gets structured.
Target senior leverage at 3.0x to 3.5x EBITDA, mezzanine at 1.0x to 1.5x on top.
Negotiate an intercreditor agreement that does not throttle the operator.
Structure mezzanine with PIK toggle and warrants priced into the IRR model.
Confirm covenant headroom of at least 20 percent at close.
In specialty distribution, layer in supplier reaffirmation letters before LOI signs as part of the Mezzanine Debt & Capital Stack workstream.
Letting the lender pick the intercreditor terms. Those terms decide what the operator can do on day 180.
"The capital stack is a contract, not a spreadsheet. Read every page of every term sheet."Jason Powell · Mezzanine Debt & Capital Stack
The deal is one thing. The capital that opens up after close is another.
The capital that opens up post-close, from refinancing to growth equity to strategic exit, runs through a small set of Wall Street relationships. That network is built in.
Related deal pages.
Transaction Fee Structuring for Specialty Distribution
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Working Capital Adjustments for Specialty Distribution
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Representation & Warranty Insurance for Specialty Distribution
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Indemnification for Specialty Distribution
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An LOI on the desk, a specialty distribution target, and a Mezzanine Debt & Capital Stack question worth a real conversation.
Twenty minutes of practitioner-grade input from a securities attorney whose first move is to read the deal, not the engagement letter.