The Acquisition Holding: What the Company Your Buyer Sets Up Costs You as the Seller
Between CHF 8,000 and 25,000 in additional legal fees, four to ten extra weeks on the calendar, and a share of the price, often 10 to 30%, whose payment will depend on a company that did not exist when the letter of intent was signed: that is, in orders of magnitude, what the buyer's acquisition holding costs the seller of a Swiss SME. None of these items appears in the offer. All of them appear in the contract.
The mechanism itself is ordinary. A buyer, whether a manager organising a management buyout, a financial investor or a competitor, rarely acquires your shares in their own name. They incorporate an AG or a GmbH, place their equity and the bank's acquisition loan inside it, and that company, called an acquisition holding or a NewCo depending on the adviser, signs the purchase agreement and becomes your counterparty.
Why the buyer does not sign in their own name
The reasons belong to the buyer, and they are legitimate. The acquisition debt sits in the holding, and the holding repays it with the dividends your former company will pay up to it. Several investors, a managing director at 20% and a fund at 80% for instance, can own it together without touching the operating company's shareholder base. Dividends flowing up qualify for the participation deduction, which avoids double taxation.
None of that concerns you directly. What concerns you is that your debtor for everything not paid at closing, vendor loan, earn-out, price adjustment, is now a shell whose only asset is the block of shares it has just bought from you, and that this block is pledged to its bank.
The items, in orders of magnitude
| Item | Order of magnitude (SME worth CHF 3 to 15 million) | Who bears it |
|---|---|---|
| Additional seller-side legal fees (sponsor guarantees, subordination agreement, tax clause) | CHF 8,000 to 25,000 | You |
| Tax ruling or opinion on indirect partial liquidation | CHF 3,000 to 10,000 | You, sometimes shared |
| Extra time between letter of intent and closing (incorporation, loan at holding level, the bank's review) | 4 to 10 weeks | The calendar, so you |
| Vendor loan subordinated to the bank loan | 10 to 30% of the price, over 3 to 7 years | You, ranking behind the bank |
| Security obtained in return (sponsor guarantee, escrow) | Offset by the buyer against price or earn-out | You, indirectly |
The first item often comes as a surprise. Your legal fees no longer serve only to review a purchase agreement; they serve to build, opposite a company with no history, the security that makes its commitments worth something. That means a guarantee from the people standing behind the holding, a ranking agreement with the buyer's bank, and tax clauses a standard contract does not contain. In the files I work on, this drafting effort runs to dozens of lawyer hours, and it takes longer still when the buyer is discovering, at the same time as you, what their bank will require.
What the structure does to the deferred part of the price
The heaviest item is not an invoice, it is the price itself. An acquisition holding is usually financed with 30 to 50% equity, a bank loan for most of the balance and, to close the gap, a vendor loan. The bank lending to the holding almost always requires that vendor loan to be subordinated to its own: you will be repaid only if the bank's ratios are met, and nothing will be paid to you while a covenant is breached. In practice, the timing of your payment is no longer set by your purchase agreement but by the credit agreement of a third party, which you did not sign and will often never see.
The same effect applies to the earn-out. If the additional price is calculated on results, the level has to be specified: the operating company, or the group that now includes the holding, its loan interest and the management fees the investor charges itself. Measured at consolidated level, without excluding those charges, an earn-out can melt away without a single customer being lost. As for the warranties you give, their cap is negotiated against a debtor whose solidity is known, which a company with a still-empty balance sheet is not.
Picture a surface-treatment business in the canton of Aargau, twenty-eight employees, an agreed price of CHF 9 million; a scenario, not a client. The buyer, an industry manager backed by two private investors, contributes 3.5 million, the bank lends 4 million to the holding, and the remaining 1.5 million takes the form of a five-year vendor loan at 3%. On paper, the owner has sold for nine million. In reality, she has received 7.5 million and holds a claim that will rank behind the bank's for five years, in a company someone else now runs.
The tax item the holding makes possible
There is one cost the buyer's structure creates from nothing, and which you alone will bear: the risk of indirect partial liquidation. Sold to an individual who keeps them as private assets, your shares are not exposed to it. Sold to a company, they move into its business assets, and the first condition is met. If, within five years, the holding draws on your former company's reserves not needed for operations in order to repay its loan, and that substance already existed at the sale, the tax authority can reclassify the corresponding part of your tax-free capital gain as taxable investment income.
The amount at stake is quickly measured: it corresponds to the excess distributable reserves the company carried on the day of the sale, taxed as income in your hands, with the partial taxation of qualifying dividends, which depending on the canton and your situation comes to somewhere between 15 and 30% of the reclassified amount. The remedy is known: distribute the excess before the sale, or have the contract state that the buyer undertakes for five years not to make the distributions that would trigger the reclassification, with an indemnity in your favour if they do so anyway. That undertaking collides head-on with the buyer's financing plan, which often relies on those very reserves to repay the bank.
What it is reasonable to ask for in return
Nothing above argues against the acquisition holding. Without it, most transfers to a manager or an investor could not be financed, and a seller who refuses it on principle gives up every buyer who does not pay cash. The question is therefore one of counterparts, to be raised before exclusivity, while you still hold the cards.
They come down to four requests. A letter from the buyer's bank confirming the principle of financing at holding level, before you stop talking to the other candidates. A written commitment from the people or companies behind the holding for the vendor loan and the earn-out, or failing that an escrow of part of the price. An earn-out definition fixed at the level of the operating company, excluding the costs of the acquisition structure. And the indirect partial liquidation clause, with its indemnity.
In the mandates I lead, the party that obtains these four points is almost never the one with the better lawyer. It is the one that understood, before the letter of intent, that the buyer sitting across the table would not be their counterparty, and that settled the debtor's solidity while still able to choose whom to sell to.