SPS released its Q1-2019 Mezzanine Market Perspective last month, detailing mezzanine market trends and transactions. The final quarter of 2018 ended strong with a 13.5% increase in deals compared to the fourth quarter of 2017.

Overall, last year’s results were a mixed bag for the mezzanine market. While the fourth quarter was strong compared with the prior year in terms of both deal activity (13.5% increase) and the increase in the percent of mezzanine deals involving a sponsor (5.4%), there was a 9.8% decline overall in year-over-year activity for the LTM period ending December 2018. Moreover, the LTM activity indicates that there was a 7.6% decrease in sponsor buyouts involving mezzanine lending. Leaving one to wonder, what’s happening in the market? Will the stronger numbers in the fourth quarter hold for the first half of 2019?

Reviewing the industry activity breakdown, the Services sector continues to dominate the mezzanine market with 32% of transactions for the quarter closing in this space, followed by both the IT (24%) and Consumer (17%) sectors. Overall, approximately 84 mezzanine transactions closed in the fourth quarter with more than 60 equity investors participating in a transaction that included mezzanine financings. Interestingly, Houston was the most active city for mezzanine transaction in the fourth quarter.

Analyzing the activity from the first quarter of 2019, one notable transaction closing in February involved Cyprium Investment Partners’ subordinated debt and preferred equity investment to support the management led buyout of Arbor Contract Carpet. The company is a provider of asphalt tile, carpeting, linoleum, and resilient flooring installation and support services. Capstone Headwaters provided sell-side financial advisory services for this transaction.

Earlier in 2018, there were reports of mezzanine managers facing competition and pricing pressure from a variety of other private financing sources that investors were electing over mezzanine debt. As we look to 2019 and beyond, there continues to be much capital to deploy on the part of investors, and if the credit market continues to grow, mezzanine investors will need to differentiate their strategy, or be more selective and creative in their approach.

To ensure that your mezzanine strategy is on target, it’s important to keep an eye on the overall market. The SPS Lender Portal offers an interactive platform to improve deal sourcing by maximizing market coverage of relevant deal flow. As mezzanine investors navigate this competitive market, there are available solutions to help capitalize on current market conditions. Do your prospects work with the same mezzanine firms for all their financing needs? Are your competitors outbidding you in the process? Are there certain intermediaries and attorneys that will be good referral sources for your strategy? If so, watch this video to learn more about the SPS Lender Portal and give your strategy the boost it needs in this market. 

Last week’s deals today

May 13 – 17, 2019
~93 deals traded

Deal of the week

SJL Partners completed its acquisition of Momentive Performance Materials. Based in Waterford, New York, the company is a producer of silicone and quartz. Sell-side financial support was provided by both Goldman Sachs and Moelis & Company. While no terms were disclosed, the deal was estimated to be valued at $3.1 billion, per the Albany Business Review.

Most active subsectors
  • IT: Software & services
  • Media: Marketing & sales services
  • Industrial: Misc. equipment & products
  • Services: Education
  • IT: Fintech
  • Industrial: Services
Most active cities
  • Houston
  • New York
  • Durham
  • San Francisco
  • Chicago

Photo by Chris Li on Unsplash

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