SPV (special purpose vehicle)

An SPV (Special Purpose Vehicle) is a company created specifically to carry a given transaction, ring-fenced from the rest of its initiators' activity. Devoid of history and of its own assets beyond its purpose, it allows a risk to be confined, investors to be pooled or a financing to be structured around a precisely defined perimeter.

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In private equity and acquisitions, the SPV most often takes the form of an Acquisition holding (NewCo) that holds the target's shares and carries the debt of an Leveraged Buy-Out (LBO). It also serves as a co-investment vehicle, gathering several contributors around a single asset, or as a securitisation structure backed by receivables. Its neutrality and narrow scope make it a particularly flexible financial structuring tool.

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By way of illustration, to acquire an SME for 20 MCHF, a fund sets up a special purpose company that receives 8 MCHF of equity and raises 12 MCHF of debt, then buys 100% of the target's shares. The vehicle thus ring-fences the acquisition debt and the risk specific to the transaction.

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Creating an SPV answers legal, tax and financial objectives that must be carefully articulated: location, applicable regime, governance and exit terms. Well designed, it clarifies the allocation of risks and rights between parties; poorly mastered, it adds a layer of complexity without real benefit, hence the importance of justifying its use in light of the transaction.