Veronis Suhler Stevenson, a media merchant bank whose funds have invested in companies such as Yellow Book USA and Stagebill Group, has launched VSS Mezzanine Partners-a fund dedicated to buying debt of media and agency companies. The fund will invest in established midsize companies across the industry, including agencies, magazines and newspapers. In industry parlance, a "mezzanine" investment is funding for a company that is past the startup stage but not yet ready for the public markets.
While they are barred by federal regulations from actively touting their plans, the fund's co-managers admitted the improvement in the media and advertising markets will make it easier to attract institutional investors to the fund. Last month, Veronis published a report on the communications industry which noted advertising spending growth will outpace the gross domestic product this year for the first time in three years (AA, May 31).
Finding companies to invest in should not be as hard as it looks, said the fund's managing directors, Errol R. Antzis and George L. Cole. "As much as you hear about consolidation in the media industry, there are still a lot of companies out there," said Mr. Antzis.
And there is a growing need in the media world for financing to support midsize companies, said the executives. Many family-owned and private companies need capital to grow in this environment, but they don't have access to capital because of their size and ownership issues, said Mr. Cole.
Many of these companies, such as family-owned newspaper chains, don't have the ability to tap the debt markets and don't have the critical mass to go public to raise growth capital, said Mr. Antzis
Additionally, the management in these companies doesn't want to give up control to a private equity investor, said Mr. Cole. Veronis structured the fund as a debt vehicle to give them another choice, he said. Private equity investors buy ownership stakes, which give them a measure of control over the companies, while debt investors are treated more as creditors than part owners.
The Mezzanine fund, which is estimated to have raised $100 million to date, plans to make investments of $10 million to $75 million in companies with annual earnings of $5 million or more.