The OBO, for Owner Buy Out, is an operation that is still little known to the general public, but is regularly used by business managers in order to structure assets, to provide personal security and to anticipate the transfer.
Often presented in a simplistic way, OBO is in reality a complex legal and fiscal tool, which must respond to a clear economic logic in order to be relevant and secure.
What is an OBO?
An OBO consists in a manager selling all or part of his own company to a holding company that he controls, directly or indirectly.
In other words, the entrepreneur sells his company... to himself, through an intermediate structure.
Unlike a transfer to a third party, OBO allows the manager to:
- to free up cash,
- while maintaining operational control of his business,
- and by reorganizing the holding of his professional assets.
OBO stands out:
- traditional LBO, where the purchaser is a third party (funds, managers, investors),
- of the external sale, which involves a definitive exit of the capital.
In what cases can an OBO be relevant?
The OBO is neither automatic nor universal. It is aimed at very specific situations, in particular when the manager wants to:
▪ Secure part of your personal assets
A large part of the assets of managers is often concentrated in their work tools. OBO can make it possible to rebalance this risk by transforming part of the professional value into financial assets.
▪ Anticipate a future sale or transfer
OBO can be an intermediate step before a transfer to a third party or a family transfer, by structuring the holding of capital at an early stage.
▪ Legally reorganize the ownership of the company
Setting up a holding company sometimes allows for better readability, clearer governance and more coherent asset organization.
How does an OBO work, in concrete terms?
Without going into overly technical engineering, the mechanism is generally based on the following steps:
- Creation of a takeover holding company, controlled by the manager
- Transfer of the shares of the operating company to this holding company
- Financing of the operation, combining:
- personal contributions,
- bank debt,
- sometimes bond financing
The sale of shares generates capital gain, which is subject to taxation. Depending on the situation, certain fiscal mechanisms can be optimized.
The holding company then becomes the owner of the operating company, and the value gradually rises in the form of dividends, making it possible in particular to repay the debt.
The increase in dividends under the mother-daughter regime makes it possible to deduct loan interest from the results of the holding company. On the other hand, under the regime of fiscal integration, this deductibility is limited by the Charasse amendment during the first nine years of earnings of the holding company.
FAQ — Frequently asked questions about OBO
What is the difference between an OBO and a classic LBO?
An LBO (Leveraged Buy Out) generally involves an external purchaser (investment fund or management).
In an OBO, it is the manager himself who buys his company via a holding company, often to secure his assets while remaining in control.
Is OBO only for large companies?
Not necessarily. The OBO is adapted to sufficiently mature SMEs and ETIs, whose manager wishes to optimize their asset structure. The main criterion is the financial and economic capacity to finance the recovery via the holding company.
Am I losing control of my business?
No One of the main advantages of OBO is maintaining operational control, even after the shares are sold to the holding company.
What taxation applies to liquidity generated by OBO?
Capital gains on the sale of shares are subject to tax. Dividends going back to the holding company can benefit from advantageous tax treatment, but only if the structure is properly set up.
How long does it take to set up an OBO?
An OBO is a long and complex process: legal structuring, financing, drafting pacts and fiscal validation can take several months depending on the size and complexity of the company.
Do you need a wealth audit before an OBO?
Yes. The OBO must be part of a global wealth strategy. An audit allows:
- to verify economic coherence,
- to assess the legal and fiscal structure,
- and to ensure the safety of the leader and his family.
