Family Office Case Studies
Intergenerational wealth transfer
Background
A European family office with a €400 million estate is managing the transition of wealth and control to the next generation.
The family decided to structure a Net Asset Value (NAV) facility to facilitate an efficient and tax-efficient buyout of its retiring founder, balancing the need for liquidity with long-term financial prudence.
The Challenge: A Large, Liquidity-Constrained Succession
The family office was majority-owned by its founder, who held a 60% stake valued at €240 million. As the founder prepared for retirement, the family needed to fund this significant buyout. A traditional sale of the underlying assets was highly unattractive, as it would trigger substantial capital gains taxes and dismantle a carefully curated, high-performing investment portfolio. The challenge was to generate €240 million in liquidity without resorting to a disruptive and value-destructive fire sale.
The Solution: A 30% LTV NAV Loan for a Structured Buyout
The family office and its advisors devised a strategy using a NAV loan to provide a significant portion of the required capital. To maintain a conservative risk profile, they decided on a 30% Loan-to-Value (LTV) ratio. This meant that by pledging the entire €400 million estate as collateral, they could secure a €120 million NAV loan.
This loan would cover 50% of the founder's buyout. The remaining €120 million would be funded through a combination of the next generation's personal capital and the family office's retained earnings. This balanced approach shared the financial responsibility between external financing and internal resources.
Implementation: A Phased Transfer with a Fixed-Rate PIK Loan
The €120 million NAV loan was structured with a 5-year term and a fixed Payment-in-Kind (PIK) interest rate. The fixed rate provided certainty (and repayment optionality) in a volatile market, while the PIK feature was crucial, as it eliminated the need for cash interest payments during the transition period. This allowed the family office to direct its operational cash flow towards repaying the loan principal and supporting portfolio growth.
The buyout was executed over a 5-year period, with the founder's ownership gradually transferring to the next generation. This phased approach ensured a smooth leadership transition and made the large buyout financially manageable.
