In a business acquisition, two buyer profiles stand out :
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Companies, acquiring as part of an external growth strategy,
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Individual buyers, often eager to take the leap into entrepreneurship by taking over an existing business.
For the latter, the creation of a holding company has become common practice, especially to house the acquired company’s shares and optimize the legal and financial structure. This model is particularly widespread in leveraged transactions, known as LBOs (Leveraged Buy-Outs).
While the holding structure offers undeniable advantages, it also has limitations that should be carefully assessed before making any decision.
The advantages of a takeover holding company
1. A framework suited for leveraged financing (LBO)
The holding–subsidiary structure is highly valued by investors (venture capitalists, business angels, private equity funds). In practice, the holding company takes on the bank debt needed for the acquisition, then repays it using dividends distributed by the target company. Financing is usually structured in layers :
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Senior debt : medium-term bank loans,
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Junior debt : more flexible financing, often repaid after bank loans.
This structure maximizes financial leverage and secures the deal’s financing.
2. Tax deductibility of interest
In most cases, the interest on loans contracted by the holding to acquire the target’s shares is tax-deductible, under certain conditions. This reduces the real cost of debt.
3. Flexible legal organization
The holding enables a clear and adaptable structure, separating activities such as :
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operations,
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real estate,
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investment portfolios.
This avoids the asset mixing often seen in SMEs from past decades and simplifies future transactions (branch sales, asset transfers, integration of new activities). In case of a sale, only the shares of the relevant company need to be transferred, without affecting the others.
4. Tax benefits of the parent-subsidiary regime and tax consolidation
If the holding owns at least 95% of a subsidiary, it may opt for the tax consolidation regime, allowing profits and losses to be offset within the group, reducing overall tax. Otherwise, the parent-subsidiary regime (ownership ≥ 5%) already provides a 95% exemption on dividends received.
5. Synergies and economies of scale
An active holding can centralize services (HR, accounting, legal, communication, purchasing) and recharge them to subsidiaries. This pooling creates economies of scale and strengthens group governance.
Well designed, the holding company is a powerful lever to finance, structure, and grow a business over the long term.
The disadvantages of a takeover holding company
1. A more complex and costly structure
Multiplying entities generates extra costs :
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legal fees (general meetings, registry filings, etc.),
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accounting fees, sometimes statutory auditors for both the holding and the subsidiary.
These costs must be anticipated from the start.
2. Risk of financial dependence
The holding’s repayment capacity depends directly on the results of the acquired company. In case of lower profitability or a sector crisis, the dividend upstream may not be sufficient to service the debt, weakening the whole structure.
3. Tax frictions
Despite the parent-subsidiary or tax consolidation regime, dividend upstream can still create tax frictions. Restrictive conditions may limit the benefits (minimum ownership, holding period, caps on deductible financial expenses).
4. Risk of standardized choices
The popularity of the LBO model sometimes pushes buyers to focus only on “LBO-compatible” companies (steady profitability, predictable cash flow). This can lead to overlooking other interesting opportunities : distressed businesses, atypical sectors, or smaller companies with strong potential.
Holding de reprise : une solution pertinente, mais à manier avec discernement
The creation of a holding company in a business acquisition is a powerful tool for structuring, financing, and tax optimization. It allows for anticipating future operations, creating synergies between subsidiaries, and optimizing group taxation.
However, this structure should not be chosen solely for its tax benefits. It requires a thorough analysis of the target’s projected profitability and careful consideration of the buyer’s overall strategy. Risks linked to financial dependence or structural costs must be anticipated.
Support from a corporate lawyer, an M&A advisor, and an accountant is strongly recommended to secure the transaction and fully benefit from it.
THE EVALIANCE CAPITAL APPROACH
- The holding company optimizes financing (leverage, LBO) and taxation (tax consolidation, parent-subsidiary regime).
- It provides valuable legal and organizational flexibility.
- But it also involves costs, financial risks, and some complexity.
Well designed, the holding is a strategic tool; poorly anticipated, it can weaken the acquisition project.
