Investment Criteria
In providing later-stage financing to growing companies, NewSpring Mezzanine looks for companies that are growing rapidly, executing a merger or acquisition, or engaging in an ownership transition – generally an event in the life cycle of the company creates the need for mezzanine capital.
Company Characteristics:
Companies seeking mezzanine financing to support growth scenarios must have proven track records, strong management, and a sustainable competitive advantage. Successful candidates typically have revenues ranging from $10 million to $100 million, positive cash flow, and earnings of approximately 10% of sales. Generally, such companies are closely-held private firms some of which may have institutional equity investors, while others will have been initially financed by founders, and/or other individuals. However, NewSpring Mezzanine will also finance companies that have obtained prior funding in the public markets.
Start-up companies that have not yet attained revenue, or do not meet our overall criteria, are not appropriate for this form of financing, which emphasizes financial metrics based on current cash-flow and balance sheet stability.
Industries:
NewSpring Mezzanine looks for opportunities to finance companies in the following industries and sectors: 1) Late-Stage Technology, 2) Health Care Services, 3) Business Services, and 4) Specialty Manufacturing. Companies operating in these areas tend to have strong growth characteristics, which may require the form of growth capital provided by NewSpring Mezzanine.
Market, Management and Model:
NewSpring Mezzanine’s investment team evaluates companies based on factors pertaining to the perspective portfolio company’s market, management and business model. These factors include:
Market:
- An addressable market of at least $500 million.
- A market with a growth rate that exceeds the U.S. GDP.
- A market and operating space that the NewSpring Mezzanine team knows and understands.
- A market with a low concentration ratio of businesses operating in the space.
- An identifiable exit strategy for the company in that market.
Management:
- A CEO and management team with strong industry knowledge and prior experience: 1) operating in the industry, 2) addressing the target market, and 3) running a successful business together.
- A team whose financial interests are aligned with those of investors.
- A team whose commitment is evidenced by their own financial investment in the enterprise.
Model:
- A business model that is capital efficient.
- A business model based on recurring revenue, high contribution margins, a proven product or service, a scalable platform, and a sustainable competitive advantage.
- A business model that addresses the following competitive forces: rivalry, threat of substitutes, buyer power, supplier power, and barriers to entry.
Investment Size:
NewSpring Mezzanine provides financing for a company that generally ranges between $2 million to $5 million. NewSpring Mezzanine will invest with a syndicate of like-minded institutional investors and will lead, co-lead, or co-invest in an investment round.
Geography:
NewSpring Mezzanine finances companies primarily in the Mid-Atlantic region, comprising the states of Massachusetts to North Carolina. In this region, the core focus for financing is in Pennsylvania, New York, New Jersey, and Delaware, where the NewSpring Principals have substantial experience and business contacts.