Planning your future: LBO, a business exit strategy to consider

For many entrepreneurs, as their professional assets represent the main part of their wealth, a lack of preparation in their exit planning may results in an inability to achieve both personal and corporate goals. There is more to exit planning than just selling a business. Entrepreneurs have many options when deciding how to exit their business, all with different consequences, timelines and preparation processes. In this respect, leveraged buyout options are solutions to be explored in order to allow business owner to transform part of an illiquid professional asset into a liquid personal asset.

The leveraged buyout solution – a way to consolidate cash-out and control exit planning

The Owner Buy Out (OBO) is a financial operation, which allows the business owners of SMEs to sell, usually, to a holding company which they control. This can be all or part of the shares of their company. The holding company will then buy the balance of the shares not contributed.

The holding company is in principle financed by a senior debt. Two categories of OBOs exists: «pure» OBOs in which no financial investors are involved and «classic» OBOs using the financial resources of private equity. With classic OBO, external investors may then also take a position in capital and/or convertible bonds (mezzanine debt). In this case, the contribution to the holding company is performed based on a valuation integrating generally the growth prospects resulting from the «business plan» established jointly with the third party acquirer and potentially allowing immediate higher cash out amounts for the entrepreneur. This consideration of the future may sometimes be tempered by «earn out» mechanisms or price complements depending on the achievement of the plan.

In addition to a well thought-out financial package, the OBO offers much sought-after advantages. Firstly, the OBO is the simplest and most efficient way to achieve a cash-out, i.e. the possibility to transform part of the manager’s professional assets into private assets. This operation allows the manager who has invested in his or her company to recover part of his capital in order to build up own assets protected from economic hazards. The distribution between the contributions and the transfer of the shares to the holding company will determine the amount of the cash-out.

Secondly, the OBO allows bringing a new dynamic to the company. Either because the OBO will see the exit of a historical investor, or because it may allow the entry of new investors in the capital, the OBO is often used as the opportunity to formalize a new strategic plan. The entry of an investor in the capital of the takeover holding will also send a strong signal to the banks about the quality of the project. Eventually, the presence of external investors alongside the entrepreneur could be a critical asset for the future sale of the company. In a way, the OBO allows the company to be sold twice.

In some cases, the OBO is an excellent way to restructure the company’s capital by bringing in the executives they wish to associate with the set-up, this is referred as a MBO.


As a private bank, we consider our role to help our clients conducting their financial planning and prepare for the next steps, be it retirement or a business venture. We are here to help you to identify, evaluate and choose your ideal exit strategy option and then particularly if the business was your main or sole asset, provide you with the right advice to manage and invest wisely the proceeds. In this context, we are pleased to help our clients benefit from our extensive network of partners, in order to help take care of the whole exit planning process. These cover the valuation of the company, financing, elaboration of the financial package, drafting of the legal documentation related to the operation, meetings with potential investors/ private equity funds, selection of the investment fund, assistance during due diligence and much more.

Lead by our entrepreneurial thinking and positioning at Banque Havilland, we stand next to our clients to provide you with strategic guidance to master all dimensions of your net worth evolution, from its growth to its transfer to the next generation.

Karen Ruphy
Head of Wealth Planning at Banque Havilland S.A.

( source: La Libre (French version))