Hi ! Today, we are going to delve into a subject which seems reserved for major financiers, but which is within everyone's reach if we take the time to understand: the formation of companies by holding companies and the use of LBOs (Leveraged Buy-Out ). Have you ever heard of these strategies that seem straight out of a Wall Street movie? Well, that's exactly what we're going to talk about.
The LBO: A Clever Financing Tool
The LBO, or leveraged purchase, is simple: you buy a company using more debt than capital. This allows you to acquire a large company with relatively little of your own money. The main levers used here are financial, fiscal and legal.
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Financial leverage : Let's say you want to buy a company worth 10 million euros. Rather than taking all that money out of your pocket, you use money from the bank. The smart thing is that the acquired company will generate revenue, and that revenue will help pay down debt.
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Tax leverage : The interest you pay on this debt? You can deduct them from the company's taxes. This reduces the taxes the company has to pay, which improves its cash flow.
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Legal leverage : You set up a structure where, even if you only invest a small part of the capital, you control the entire company.
The Art of Stacking Holdings
Why complicate yourself with several holding companies? Each level of holding that you create multiplies the effects of the levers. The more layers there are, the less personal capital you need to invest.
Let's take a concrete example:
- You want to buy a company for €10M.
- With a single holding company, if the bank lends you 50%, you still have €5M to go out.
- You find investors, but you remain in the majority, and you still have to invest €2.6M.
- Too much ? Add one more holding company, and there you only have to find €1.3M.
- Another holding, and you are at €0.2M.
In the end, for a €10M company, you will only have invested €0.2M out of your pocket. Banks lend the rest, investors provide capital, and you control everything.
Building an Empire with Crumbs
The real magic thing? Once the acquired company starts generating profits, those revenues can repay the banks and, eventually, buy back the shares of other investors. You end up being the king of your own empire, whether in luxury, media or industry.
Holding companies and LBOs can seem intimidating, but with the right knowledge and a little daring, they are accessible to those ready to dive into the world of corporate finance. It's a way of doing great things with relatively limited means, by intelligently using leverage.
So, ready to build your empire?
