Here are the main risks a bank must assess when financing a company acquisition:

  • Management. A change in ownership often goes hand in hand with a change in management, which can destabilize the company, especially when it is small in size.

  • New liabilities. Repaying the acquisition debt is a new financial burden for the company, which consequently loses some of its financial room for maneuver.

  • Weak collateral. Acquisition financing will generally take place through a holding company that has no assets other than the acquired shares. Pledging these shares offers very uncertain security, as they will lose their value if the target company runs into difficulty. It would be tempting for the banker to take security over the assets of the acquired company (target company)—for instance, a mortgage on a building, a pledge on business assets (fonds de commerce), a pledge on receivables, or factoring... However, the Companies Code prevents any subsidiary from financing or pledging its assets for its parent company (Art. 629 C.soc.). It should be noted that the legislature recently relaxed Article 629, subject to compliance with certain specific conditions (Royal Decree of 08.10.2008). This topic will likely be the subject of another article.

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To build a high-quality financial file and reassure the banker, several solutions exist:

  • Third-party participation: Several organizations can complete the financing structure. In the public sector, key players include the Fonds de Participation (federal), Sowalfin (Walloon Region), and regional investment funds (Invests). Additionally, numerous private investment funds exist, generally focusing on larger-scale transactions. For smaller deals, a business angel network like Be-Angels (French-speaking Belgium) can often provide tailored solutions.

  • Vendor loan: In certain cases, the seller can be convinced to reinvest part of the purchase price into the holding company as equity or as a subordinated loan. They will only be repaid if the bank loan repayment proceeds smoothly. The seller may find this advantageous, as the interest rate received is typically significantly higher than a risk-free rate.

  • Dividend distribution: Despite the constraints of Article 629 of the Companies Code, legal precedent allows certain financial structures aimed at reducing the holding company's debt burden. If the target company holds sufficient cash reserves and available retained earnings, an extraordinary dividend can be distributed under the Participation Exemption regime (Revenus Définitivement Taxés / RDT). If cash reserves are insufficient, it is sometimes possible to implement a debt push-down and repay a bridge loan (cash bridge) within the holding company. For these complex structures, consulting a specialist is essential.

  • Two-phase sale: When the acquisition includes real estate in addition to operational assets (fonds de commerce), structuring the deal in two phases can be judicious. This limits the initial need for credit. For the second phase, the buyer can demonstrate a proven track record. This generally involves transferring operating assets first while keeping the seller as a landlord, followed by transferring the real estate a few years later. A call option coupled with the lease agreement can reassure both parties. Note that this type of structure is not tax-neutral (capital gains tax, registration duties, asset depreciation eligibility); each individual file must be examined with care.

Criticism of bankers runs high during challenging periods. Access to credit tightens precisely when businesses need it most. For business transfers, the situation is particularly critical: many companies face real succession challenges, while financing remains the indispensable key to completing a takeover.

Yet solutions to secure financing often exist. Understanding the banker's constraints generally makes it possible to move forward and strike a realistic balance.