McGuireWoods Duo Pens Deal Points Article Examining Capital Stack

February 2, 2024

McGuireWoods associates PJ Harris and Jacob Mitchell recently wrote “A Deal Lawyer’s Guide to Calibrating the Capital Stack,” an article published in the winter 2024 edition of Deal Points, the newsletter of the American Bar Association’s Mergers & Acquisitions Committee.

According to the article, clients involved in M&A or private equity (PE) deals often ask their deal lawyers for advice on the best way to receive or inject capital into a company to maximize value and minimize risk.

“The capital stack, or capital structure, is the mix of capital sources an investment vehicle or venture can use to fund a business,” Harris and Mitchell explained in the article. “Different capital sources have different risk/reward profiles.” The authors explained and analyzed the three main categories of capital — debt, equity and mezzanine (a financing instrument with debt and equity features) — as well as the potential value and risks each presents.

“The optimal calibration of the capital stack makes value creation in M&A and PE more achievable,” they concluded.