Mezzanine and private debt, structured from your side of the table
Growth capital that sits between senior debt and equity — without heavy dilution. Caban structures the requirement and runs the raise as your advisor, not as a lender selling one product.
What mezzanine finance is — and is not
Mezzanine is a hybrid: it behaves like debt (contractual interest, a repayment schedule, security and covenants) but carries an equity component (warrants, conversion rights, or an equity kicker) that lifts the funder's return into the 15–25% range. For the business owner, the appeal is simple: more capital than a bank will lend, without giving up the ownership an equity round would cost. In South Africa, mezzanine is often less about slotting a layer into a sophisticated capital structure and more about filling a growth-funding gap the banks won't touch.
When mezzanine is the right instrument
- Growth and expansion — funding a contract, acquisition or capacity expansion that will generate the cash to service and repay it.
- Management and leveraged buyouts — bridging the gap between senior debt and the equity the buyers can put in. Management buyouts →
- Acquisitions — financing a purchase without diluting existing shareholders down to fund the whole deal in equity.
- Recapitalisation — restructuring the balance sheet or partially cashing out a shareholder while keeping control.
Mezzanine is expensive relative to senior debt for a reason. It is the right answer when the growth or transaction it funds generates a return well above its cost — and the wrong answer as a substitute for equity in a business that isn't yet generating the cash to service it.
The advisor-side gap
Almost everything published on mezzanine in South Africa is written by the funds that sell it. That leaves owners without independent guidance on the question that matters: is mezzanine even the right instrument, and if so, which funder and structure fit this business? Caban works the other side — we assess whether mezzanine, senior debt, equity or a blended structure best fits your situation, model the cost against the return it funds, approach the appropriate funders (South Africa has relatively few dedicated mezzanine managers), and negotiate terms as your advisor.
Mezzanine, senior debt or equity?
The instrument follows the situation. Senior debt is cheapest but limited and heavily secured. Equity is patient but dilutive and expensive in ownership terms. Mezzanine sits between — more available than senior debt, less dilutive than equity, but priced accordingly. Most real raises end up as a blended structure, which is precisely where independent advice earns its fee. Caban has executed more than 200 transactions since 2012 — including mezzanine and structured debt raises, buyouts and recapitalisations — across exactly these instruments.
Questions, answered
What is mezzanine finance?
Capital that sits between senior debt and equity in the capital structure — typically subordinated debt or preferred equity with an equity component such as warrants. It gives businesses access to more capital than a bank will lend, without the heavy ownership dilution of an equity round, at a funder return usually around 15–25%.
What does mezzanine finance cost in South Africa?
Funder returns typically run around 15–25%, achieved through a mix of contractual interest, rolled-up interest and an equity kicker — higher than senior debt (roughly 10–13%) but lower in ownership cost than equity. The right comparison is against the return the funded growth or transaction generates.
When should a business use mezzanine finance?
For growth, expansion, acquisitions, management or leveraged buyouts, and recapitalisations — situations where the business generates cash to service the debt and the transaction returns more than the mezzanine costs. It is not a substitute for equity in a business that cannot yet service it.
Who provides mezzanine finance in South Africa?
A relatively small set of dedicated mezzanine and private-debt fund managers, alongside some banks and private equity firms. Because the market is concentrated, an advisor who knows which funder fits your situation and can run a competitive process adds real value.
Is mezzanine better than raising equity?
It depends on the situation. Mezzanine preserves ownership and control but must be serviced and repaid; equity is patient but dilutive. Most real raises end up as a blended structure. Independent advice on which instrument fits — rather than a single lender's pitch — is the point of engaging an advisor.