Family Office Case Studies
Non-Dilutive Growth Capital. Fuelling Investment Holding Company Growth with a NAV Facility
Background
A prominent European family office, with a successful €200 million investment holding company, aimed to accelerate its growth through new acquisitions.
The portfolio consisted of mature businesses, but the family office found that securing financing for each new acquisition individually was inefficient and expensive and inflexible (interest rate, cash-pay interest, time to money).
The Challenge: The Burden of Cash-Paying Debt
The family office’s ambition was to expand its portfolio by acquiring new companies and providing additional capital to its existing businesses.
However, the high cost and administrative burden of obtaining individual loans for each portfolio company created a fragmented and inefficient capital structure. The family office sought a more holistic financing solution that would allow it to raise a significant amount of capital at a lower blended cost, based on the strength of its entire portfolio, while maintaining a conservative risk profile.
The Solution: A Conservative NAV Facility for Portfolio-Level Financing
The family office opted for a NAV facility to unlock the value of its investment holding company’s portfolio. By taking out a facility secured against the combined net asset value of its portfolio companies, the family office could obtain capital at a more favourable rate than individual company-level debt.
To align with its conservative investment philosophy, the family office decided on a 25% LTV ratio.
Implementation: Structuring the 25% LTV NAV facility
The family office secured a €50 million NAV facility, representing a 25% LTV against its €200 million portfolio. The facility had a 5-year term and a fixed Payment-in-Kind (PIK) interest rate of 10.5% per annum. The 5-year NAV facility had the option to extend by up to 2 years.
The PIK structure meant that all interest would accrue and be added to the principal, preserving the holding company's cash flow for reinvestment. The €50 million in NAV facility proceeds were placed into a dedicated acquisition fund to be deployed for new investments.
This more conservative 25% LTV significantly reduced the risk to the portfolio and provided a substantial collateral cushion.
The Results: Moderate Growth with Lower Risk
The €50 million NAV facility provided the capital for a period of steady, controlled growth and the family office was able to act on attractive opportunities. The lower cost (and hugely increased flexibility) of capital compared to individual loans enhanced the returns on its new investments.
Over a 5-year period, the portfolio’s value grew from €200 million to over €440 million, a significant outperformance compared to the organic growth that would have been achieved without the NAV facility.
