A G E N D A A Day in the Life: Mezzanine Finance May 18, 2018 Dan Hemiadan, CFA, Partner, GMB Mezzanine Capital Stephen Hann, CFA, Vice President, Spell Capital Partners 1
A G E N D A 1 Introductions 2 Background & Career Path 3 Firm Overview 4 What is Mezzanine Finance? 5 Responsibilities 6 Skill Set 7 Q & A 2
BACKGROUND & CAREER PATH Dan Hemiadan, CFA Stephen Hann, CFA Education Education BS, St. Cloud State University, Finance BA, Hillsdale College, Economics ▪ ▪ CFA Charterholder CFA Charterholder ▪ ▪ Work History Work History GMB Mezzanine Capital Spell Capital Partners ▪ ▪ Churchill Capital Black River / Proterra ▪ ▪ U.S. Bank Leveraged Finance U.S. Bank Capital Markets ▪ ▪ Wells Fargo Global Banking ▪ 3
FIRM OVERVIEW Dan Hemiadan, CFA Stephen Hann, CFA GMB Mezzanine Capital Spell Capital Partners Mezzanine fund manager Private equity and mezzanine fund ▪ ▪ manager Based in Minneapolis, MN ▪ Based in Minneapolis MN ▪ 10 employees ▪ 12 employees ▪ SBIC investment program ▪ SBIC investment program ▪ Currently investing Fund III ▪ ~$600.0 million AUM ▪ 90 investments since 2005 ▪ Currently investing Fund II ▪ Active portfolio: 30+ investments ▪ 31 investments since 2013 ▪ Investment size: $5 – 25 million ▪ Active portfolio: 26 investments ▪ Investment size: $4 – 12 million ▪ 4
WHAT IS MEZZANINE FINANCE? % of Multiple of Funding Capitalization Cash Flows Target IRR Source of Repayment Providers Banks, Cash Flow, Liquidation of Senior Debt 30.0% - 40.0% 2.0x – 3.0x 6.0% - 8.0% Commercial Assets Finance Co’s Cash Flow, Senior Debt Mezzanine Mezzanine 10.0% - 15.0% 3.0x – 4.0x 17.0% - 19.0% Refinancing, Sale of Firms Company Private Equity 40.0% - 50.0% 6.0x – 8.0x 21.0% - 25.0% Sale of Company Equity Firms 5
WHAT IS MEZZANINE FINANCE? Private Equity Funds Mezzanine Funds Concentrated portfolio ( 5-7 investments ) Diversified portfolio ( 10+ investments ) High-risk, high-reward Lower volatility Capital gains Current income Longer time horizon Shorter time horizon / “ j-curve ” – realizations after 5-6 years – realizations as early as 2-3 years 6
RESPONSIBILITIES Origination Portfolio Management ▪ ▪ 1. Financial sponsor network 1. Performance vs. projections 2. Investment banks 2. Liquidity 3. Commercial banks 3. Cushion to covenants 4. Other mezzanine providers 4. Valuations 5. Personal networks 6. Other….? Regulatory Compliance ▪ 1. Reporting Execution 2. Legal filings ▪ 1. Due diligence 2. Financial modeling Fundraising ▪ 3. Credit Underwriting 1. Marketing 4. Investment committee 2. LP meetings 5. Documentation 7
SKILL SET 1. Due diligence 2. Financial modeling 3. Attention to detail 4. Creative & original thinking 5. Calculated risk / reward 6. Writing 7. Marketing & communication 8. Negotiation 9. Legal concepts 10.High ethical standards 8
Questions? DOFU 2-2018 432062 9
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