£50M Mezzanine for UK Management Buyout
Subordinated mezzanine with PIK toggle and equity warrants supporting management-led buyout from family ownership.
Deal Overview
Transaction Type
Mezzanine Financing
Sector
Business Services
Term
8 years
Jurisdiction
England & Wales
Facility Size
£50M
Total Leverage
5.5x EBITDA
Structure
Subordinated mezzanine
Closing Date
Q2 2024
The Challenge
Senior management, alongside a small private equity partner, sought to acquire the business from the founding family—a first-time MBO with limited management equity and the need for patient, subordinated capital behind senior lenders.
Key complexity factors included:
- •Constrained management equity cheque relative to purchase price
- •First-time MBO requiring flexible cash treatment in early years
- •Subordination and intercreditor terms with senior lenders
- •Family seller expectations on continuity, consideration, and transition
Our Solution
We structured £50M of subordinated mezzanine with a PIK toggle during the integration phase, equity-linked warrants aligned to the management equity plan, and covenant-lite incurrence tests to preserve operating flexibility.
Structure
- →£50M subordinated facility, 8-year bullet maturity
- →PIK toggle for the first 3 years at the borrower's election
- →8% fully diluted equity warrants with pricing ratchet
- →Covenant-lite, incurrence-based covenant package only
Execution
- →12-week end-to-end timeline
- →Intercreditor and subordination deed negotiated with senior lenders
- →Warrant documentation coordinated with management equity plan and PE governance
- →Second-lien security package supporting mezzanine recovery
Deal Structure
Capital
Pricing
- •Cash interest: 11%
- •PIK: 13% if elected
- •Soft call: Years 1-4
- •Warrants: 8% FD with exit participation
Key Documentation
Mezzanine Facility Agreement
Subordinated facility agreement setting out cash / PIK mechanics, incurrence covenants, and events of default subordinated to senior facilities.
Intercreditor Agreement
Intercreditor arrangements including 180-day standstill for mezzanine enforcement and payment block mechanics aligned to senior lender requirements.
Warrant Instrument
Warrant instrument documenting 8% fully diluted economics, ratchet, and alignment with management and sponsor equity documentation.
Security Documents
Second-lien security over agreed collateral, ranking behind senior liens pursuant to the intercreditor agreement.
Transaction Timeline
Mandate & term sheet
Lender mandate, indicative pricing, PIK toggle, and warrant framework agreed with sponsor and management
Due diligence & documentation
Financial and legal diligence with parallel drafting of mezzanine facility and warrant documents
Intercreditor & security
Finalization of intercreditor with senior lenders and second-lien perfection steps
Closing
Signing and funding of senior and mezzanine facilities on completion of the MBO
Outcome
The capital stack bridged the gap between senior debt capacity and seller price expectations while keeping management aligned through warrants and preserving cash in the early years.
Post-closing benefits:
- •PIK flexibility: PIK elections in years 1-2 preserved liquidity for integration and working capital.
- •Management alignment: Warrants and co-investment supported retention and sponsor-management alignment through value creation.
- •Refinancing: After five years, the business refinanced mezzanine at a lower all-in cost as leverage and cash generation improved.
Discuss your financing needs
TULA Capital can support your transaction with structuring, lender outreach, and execution discipline.
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