Starting a business takes years before it pays a salary. Buying one that is already running means buying customers, a team and profits from day one. An LBO (leveraged buy-out) lets you do this with a limited down payment, by having the debt repaid from the acquired company's profits. It is the most powerful lever on the journey, and the most demanding.
The LBO in one picture
You do not buy the company in your own name. You set up a holding company that:
- receives your equity contribution;
- borrows the rest from a bank, and sometimes from the seller;
- buys the shares of the target company;
- repays its debt with the dividends the target pays it each year.
After five to seven years, the debt is repaid and you own the company. The leverage: with 20 to 30% of the price as equity, you control 100% of the company.
- YouContribute 20 to 30% of the price as equity
- The holding companyBorrows the rest: bank and vendor loan
- The acquired companyBecomes a 100% subsidiary of the holding
- DividendsFlow up to the holding every year
- The debtIs repaid in 5 to 7 years
A simplified worked example
A profitable SME valued at €1,000,000
| Annual net profit available for dividends | €180,000 |
| Buyer's equity in the holding | €200,000 |
| Vendor loan (the seller agrees to be paid partly later) | €150,000 |
| 7-year bank loan | €650,000 |
| Annual bank debt repayment (principal + interest, order of magnitude) | about €110,000 |
Dividends cover the repayment, with a safety margin. If profit falls by 40%, however, the holding can no longer repay: that is the whole risk of an LBO.
In Belgium, under conditions, dividends paid by the subsidiary to the holding can be largely exempt from tax in the holding (the ‘definitively taxed income’ regime), which makes the structure efficient. Most European countries have a similar participation exemption. The conditions are technical: get help from an accountant or a tax lawyer.
Test how robust your structure is
The ‘bearable fall in profit’ line tells you how far the company can decline before the debt is no longer covered.
The steps of a takeover
- Define your project: sector, size, region, what you know how to do, the equity you have.
- Find targets: business-for-sale platforms, accountants, banks, business networks, direct approaches to owners close to retirement.
- Value the company: usually a multiple of its operating profit, adjusted for risk.
- Negotiate a letter of intent: price, terms, vendor loan, handover period with the seller.
- Audit (due diligence): accounts, contracts, customers, disputes, condition of equipment, employment and tax matters.
- Finance: a solid business plan, the bank, a vendor loan, public instruments.
- Sign and succeed in the first 100 days: meet every customer and every team member, do not break anything that works.
Business transfer support in Belgium
- In Wallonia, Wallonie Entreprendre offers the WE Transmission platform, which centralises businesses for sale and matches buyers and sellers by sector, location, size and available equity; the Clubs Repreneurs, seven small-group training evenings (up to 18 people) on valuation, financing, legal issues, negotiation and the first 100 days, costing €400 incl. VAT in the 2025 edition, in Liège and Wavre; and loans and guarantees that complement bank financing.
- In Flanders, VLAIO supports business transfers and PMV provides financing.
- In Brussels, finance&invest.brussels finances companies, including takeovers.
In Europe and around the world
The wave of retirements among business owners born after the war is putting thousands of profitable SMEs up for sale across Europe and North America. In France, Bpifrance supports and co-finances many takeovers. In the United States, the search fund model was born: a young buyer raises money from investors to search for, then buy and run, a single company. The LBO principle is the same everywhere.
The most costly mistakes
- Too much debt: a stretched structure does not survive a bad year.
- Dependence on the seller: if customers are loyal to the owner rather than the company, they may leave with them. Plan a handover period.
- A rushed audit: a dispute, a customer contract that is ending, a machine to replace can destroy profitability.
- Buying a business you do not understand.
- Underestimating working capital needs: a profitable company can run short of cash.
A takeover often takes one to two years from the start of the search to signing. Do not attempt your first acquisition without an accountant, a lawyer and a banker at your side.
How it links to the rest of the journey
The LBO is the culmination of the move to the ‘business owner’ quadrant described by Robert Kiyosaki. The equity often comes from earlier steps: savings, financial investments, property projects. To find out when you can live off your income, go to the financial freedom calculator.
Where to find these services
- WE TransmissionThe Walloon platform of businesses for sale (French)
- Wallonie EntreprendreFinancing, guarantees and Clubs Repreneurs in Wallonia
- VLAIOBusiness transfer support in Flanders (Dutch)
- PMVBusiness financing in Flanders
- finance&invest.brusselsBusiness financing in Brussels
- BpifranceTakeover financing in France
Links provided for information, with no partnership. Always check a provider's terms and authorisation before committing.
Test yourself
4 questions to check what you remember. Click an answer: the explanation appears straight away.
Question 1 of 4In an LBO, who repays the acquisition debt?
The acquired company finances its own purchase through its profits.
Question 2 of 4What is a vendor loan?
It reduces the equity and bank loan needed, and keeps the seller invested in the company's success.
Question 3 of 4What does Wallonie Entreprendre offer buyers?
The Clubs Repreneurs offer seven small-group training evenings.
Question 4 of 4What is the main risk of an LBO?
An over-leveraged structure does not survive a bad year.
Frequently asked questions
What is an LBO?
A leveraged buy-out: a holding company set up by the buyer borrows to buy a company, then repays its debt with the dividends paid by the acquired company.
How much equity do you need to buy a company through an LBO?
Often 20 to 30% of the price, depending on the company's profitability, the sector and the bank. A vendor loan and regional public instruments can reduce the equity needed.
Where can you find a company to take over in Belgium?
On regional platforms such as Wallonie Entreprendre's WE Transmission, through accountants, banks and business networks, or by directly contacting owners close to retirement.
What are the risks of an LBO?
The main one is debt: if profits fall, the holding can no longer repay. Add dependence on the seller, problems discovered after the takeover and a lack of cash.
Sources
This article is educational and is not personal investment, tax or legal advice. Figures change: check them with the sources cited or a licensed professional before deciding. Read the full disclaimer.