Financial structuring mandate for an intra-family business transfer

Mandate overview: structuring the intra-family buyout of a Romandy sewer-cleaning and sanitation company through an acquisition holding

The mandate covered the financial structuring of the buyout, by a family member, of a retiring partner’s stake in a French-speaking Swiss (Romandy) SME specialised in sewer cleaning and sanitation. The mandate aimed to define the acquisition architecture, model the financing and organise the guarantees, in a business transfer context.

The buyer wished to become the sole shareholder at the end of the operation, by combining the stake already held, a gift of shares from a minority partner and the buyout of the seller’s stake, without any equity contribution.

Key challenges: financing a buyout without equity while securing cash

The main challenges of the mandate were to:

• design an acquisition architecture recognised by banks and tax-efficient;
• size a sustainable acquisition debt against the target’s cash flows;
• organise the guarantees (surety, pledge, mortgage) to facilitate financing;
• secure the tax treatment of dividend upstreaming and anticipate the seller’s cross-border issues.

Approach and results: acquisition holding, modelled debt and balanced guarantees

The work structured the operation around the following buyout structures:

• an acquisition holding (LBO) carrying the debt, into which the buyer contributes the shares in kind (capital increase, premium booked as a contribution reserve);
• an acquisition debt modelled in a central scenario: around CHF 2.3 million, amortisable over 6 years at a rate of about 3%, i.e. an annuity close to CHF 0.38 million;
• a guarantee plan combining the Romandy surety cooperative, a pledge over the holding’s shares and a mortgage on the operating real estate;
• a tax analysis of dividend upstreaming to the holding (participation relief, art. 69 to 71 LIFD and art. 28 LHID);
• the identification of cross-border issues (latent tax on the seller’s shares), with a recommendation to secure them through a dedicated tax adviser.

The chosen structure financed the entire price through debt while preserving operating cash, with the repayment capacity anchored on the target’s normalised earnings capacity.

Key figures of the mandate (orders of magnitude)

• buyout price of the stake (~47.5%): around CHF 2.2 million;
• modelled acquisition debt: ~CHF 2.3 million over 6 years at ~3%, annuity of about CHF 0.38 million;
• financing: entirely through debt, with no equity contribution;
• guarantees: pledge over the buyer’s shares (~CHF 2.5 million) and mortgage on the operating real estate (~CHF 1.5 million);
• normalised EBITDA underpinning the repayment capacity: around CHF 0.5 million;
• outcome: buyer becomes sole shareholder at the end of the operation.

Frequently asked questions: holding, LBO and family transfer

Why use an acquisition holding?

The holding allows the acquisition debt to be carried above the target, dividends to be upstreamed tax-efficiently (participation relief) and offers a structure recognised by banks. It is the usual scheme for an LBO in Switzerland.

Can a buyout be financed without an equity contribution?

It is possible when the normalised earnings capacity and the guarantees (surety, pledge, mortgage) allow it. The debt sizing must nonetheless remain sustainable against the target’s recurring cash flows. Learn more: buyout structures (LBO, MBO, MBI, OBO).

How is the acquisition debt sized?

You start from the normalised EBITDA and the cash flows available to service the debt. Here, a debt of about CHF 2.3 million over 6 years at a rate of about 3% leads to an annuity close to CHF 0.38 million, calibrated on the company’s repayment capacity.

What guarantees for this type of operation?

The plan generally combines the Romandy surety cooperative, a pledge over the holding’s shares and a mortgage on the operating real estate when the company owns it. This balance reassures the lender and facilitates the financing.

What are the tax issues for dividends upstreamed to the holding?

In Switzerland, dividends paid by the target to its holding benefit from participation relief (art. 69 to 71 LIFD and art. 28 LHID), which strongly limits their taxation and facilitates debt service. A tax ruling can secure the scheme.

How do you handle a seller in a cross-border situation?

A previous residence abroad may trigger specific tax rules (latent tax on shares). Hectelion recommends securing these aspects with a tax lawyer competent in the relevant jurisdiction, ahead of closing.

Similar mandates: due diligence and valuation in business transfers

• Financial due diligence of a Romandy sewer-cleaning SME (Romandy)
• Business valuation for the buyout of a partner’s stake in a family transfer (Romandy)
• Business valuation in a family buy-back (Switzerland)

Summary

In summary, this financial structuring mandate, carried out in six weeks for the intra-family buyout of a Romandy SME specialised in sewer cleaning and sanitation, organised the operation around an acquisition holding (LBO) financing the entire price (around CHF 2.2 million) through an acquisition debt of about CHF 2.3 million amortisable over six years at a rate close to 3%, i.e. an annuity of about CHF 0.38 million. The set-up relies on a balanced guarantee plan (Romandy surety cooperative, share pledge, mortgage on the operating real estate) and on a tax framework for dividend upstreaming via participation relief. At the end of the operation, the buyer becomes the sole shareholder, with a financing structure ready to be presented to banking partners.