Acquisition holding company

An acquisition holding company (holding de reprise), which practitioners call Newco, is a company created to buy a target company of which it becomes the parent. Its shareholders, whether private equity funds, managers or a family, provide it with equity and quasi-equity; it borrows the rest of the price. It repays its debt with the dividends that the target pays it. When the holding company holds at least 95% of the target’s share capital, it can elect for tax consolidation: the interest the holding company pays is then offset against the target’s profits. The deduction of net financial expenses remains capped by article 212 bis of the French General Tax Code at the higher of €3m or 30% of tax EBITDA. Expenses not deducted are carried forward to subsequent financial years. The price paid determines the financing need. Over the six months to the end of the second quarter of 2026, the median multiple that investment funds paid to buy unlisted euro area SMEs reached 10.2x EBITDA, compared with 7.9x for strategic acquirers. The lenders to the holding company are creditors of a company whose only asset is the shares of the target: they rank behind the target’s creditors on the target’s assets. They therefore require a pledge over the shares, guarantees from the subsidiaries within the limits of company law and restrictions on the target’s borrowing.

A holding company buys 100% of a distribution company for €200m, or 9x EBITDA of €22.2m. The shareholders contribute €90m and the holding company borrows €110m in unitranche, a leverage of 5.0x. The target pays €12m of dividends a year, which cover the €9m of interest and a partial repayment.

• The share of equity and quasi-equity in the price.
• The ability of the target to pay dividends large enough to service the debt.
• The election for tax consolidation and the cap on the deduction of interest.
• The security required: pledge over the shares, guarantees from the subsidiaries.
• Any later merger of the holding company and the target.