Overview
FMMC is currently making 3 to 5 year term loans from its second fund in the form of mezzanine debt (including subordinated debt) to profitable, privately-owned and small-cap public companies. FMMC Private Yield Fund has a Canada-wide mandate but will also look at companies based in the United States on an opportunistic basis. The Fund will look at opportunities in almost any industry. The typical profile of FMMC’s portfolio companies are those with strong stable cashflows, and which may also have an asset base that is under-appreciated by its bank lender, such as a subscription base of recurring revenues, vacant land, or other assets not fully leveraged by a bank.
While the Fund sometimes is the only lender to a company, it more often partners with a Canadian bank or credit union where together we can provide a company with a full debt solution. In such instances FMMC provides a layer of term debt that takes a 2nd secured charge, subordinated to the bank’s position, thereby enhancing the borrower’s ability to meet its financial covenants with its bank.
FMMC Private Yield Fund’s financings are typically event-driven, initiated when a shareholder group identifies a value enhancement opportunity but cannot secure senior bank debt for the full funding requirement. The most common reasons for FMMC funding include:
- acquisition financing, or financing of some other growth initiative
- buying out a retiring/disinterested shareholder or business partner
- supporting a management buy-out or a spin-out from a larger entity
- re-capitalization of the business’ balance sheet
“We think like business owners because we are!”
FMMC’s founders have backgrounds that, in addition to mezzanine debt lending, include senior operations experience and private equity. This enables FMMC to understand opportunities from the owner’s perspective and to recognize value where many other lenders may not. While FMMC has considerable flexibility with its loan structures, most typically these would entail 5 year term loans with a current interest rate in the teens. In addition, there would be a “sweetener” such as share purchase warrants in the business, that provides upside participation in the growth of the business that the loan has facilitated.
INVESTMENT CRITERIA
Profitability
Minimum trailing EBITDA of $1 million, and most typically between $2-5 million.
Industry
Any, excluding real estate development and natural resource exploration/extraction.
Geography
Canada-wide, USA from New England to Chicago where the business has some meaningful connection to Canada.
Target Cheque Size
$2 -10 million per opportunity, with the ability to look at larger deals by bringing in its investor base as co-investors.
Other
Attractive growth prospects buttressed by some element of competitive advantage.
