Financing a Company Acquisition in Austria: Equity, Bank Debt, aws Guarantee, Vendor Loan

In practice, a company acquisition is financed from four building blocks: the buyer's own equity, a bank loan against the cash flow of the target, a state guarantee from aws (Austria Wirtschaftsservice), and a portion of the purchase price left with the seller as a vendor loan or earn-out. What carries the structure is not the purchase price but the question of whether the business can service the debt out of its own earnings.

For buyers, our approach to buying a company sets out how we source, assess and execute acquisitions.

What this article covers

The sections below set out the building blocks, their sequence in the process, and the legal limit every buyer financing in Austria runs into: the target company may not simply provide security for its own acquisition. The corresponding process is described in how a company acquisition works.

The question the bank actually asks

Buyers usually prepare for the question of how much equity they are bringing. The bank's decisive question is a different one: is the sustainable earnings figure of the target sufficient to cover interest and amortisation — after a market-rate management team has been paid?

That sets the arithmetic of every acquisition financing. The starting point is not the profit in the last set of accounts but the adjusted earnings figure: a notional owner's salary deducted, one-off effects and the previous owner's private expenses stripped out, capital expenditure requirements taken into account. How this normalisation works is explained in what is my company worth and EBIT or EBITDA.

Whatever remains has to cover the debt service with a margin of safety. If too little remains, the problem is not the financing but the price — or the structure.

Equity: why the ratio is not the only lever

There is no universally applicable equity ratio for company acquisitions; it depends on the sector, asset base, earnings stability and the security available within the business. Two points hold regardless.

First, equity is not only cash. Subordinated shareholder loans and mezzanine capital also count as equity-like — both improve the picture for the bank without you having to put up the amount in cash.

Second, a buyer who cannot reach the required equity ratio has three routes, all of them better than an overstretched bank structure: leave part of the purchase price with the seller, bring in a partner with capital, or buy a smaller stake now and the rest later. On the last of these, see minority shareholdings.

The bank loan and the question of security

The house bank normally finances the purchase price as an investment loan with a term matched to the earnings power of the business. The sticking point is security. In an asset deal the assets pass into your ownership and can be pledged. In a share deal you acquire shares — the assets remain inside the company, and those very assets cannot as a matter of course secure your personal acquisition loan. More on that below.

What the bank expects at this stage: the adjusted figures for recent years, an integrated forecast including a debt service calculation, the outcome of due diligence, the draft company purchase agreement, and your own qualifications for the sector. That last point is underrated: with owner-managed niche businesses, the person of the buyer is part of the credit risk.

The aws guarantee: the state takes the risk, not the loan

In Austria, business takeovers and successions are expressly eligible for guarantees — both as a share deal and as an asset deal including goodwill. Austria Wirtschaftsservice (aws) typically guarantees 80 per cent of the loan amount, while the financing institution retains at least 20 per cent of the risk. The guarantee is capped at EUR 30 million per project; for projects above EUR 5 million, the aws risk may not exceed one third of the project volume, and in exceptional cases up to 60 per cent.

Three points regularly cause misunderstandings in practice.

The guarantee is not a loan and cannot be applied for directly. It is submitted together with the financing bank through the aws funding portal — so you first need a bank willing to take the case on in principle.

The bank still runs its own assessment. It confirms that the project is viable and administers the security for its own share. The guarantee substitutes for missing security, not for missing earnings power.

The leverage sits exactly where buyers come unstuck: goodwill. A purchase price consisting largely of goodwill is almost impossible to secure conventionally — and this is where the guarantee moves the boundary of what is feasible.

NeuFöG: the charges an acquirer no longer pays

The Neugründungs-Förderungsgesetz (NeuFöG, the Austrian act promoting business start-ups) applies not only to new formations but also to business transfers. For acquirers it removes stamp duties and federal administrative charges for the documents and official acts connected with the takeover, court fees for entries in the Firmenbuch (the Austrian companies register), and Grunderwerbsteuer (real estate transfer tax) to the extent that the value does not exceed EUR 75,000 per transfer.

The relief is tied to three conditions that must be met simultaneously: the essential operating assets must pass in a single transaction as a functioning whole; there must be a genuine change of business owner, without the previous owner continuing in a controlling role; and the acquirer must not have been active in a comparable controlling capacity in the five years preceding the transfer. The exemption is claimed on the official form together with confirmation from the statutory professional representative body — and it has to be done in good time, not retrospectively.

The third condition excludes part of the buyer universe: anyone already running a business in the sector in a controlling capacity does not qualify. For first-time acquirers, classic management buy-ins and regional successors, however, it removes a noticeable block of cost.

Vendor loans and earn-outs: the part the seller finances

Where the bank and your own equity do not cover the purchase price, the seller is the obvious third financier — and often the cheapest. A vendor loan means that part of the purchase price stays outstanding and is repaid with interest over a number of years. An earn-out makes part of the price dependent on future performance.

Both instruments solve the same problem from two directions: they reduce the amount payable at closing and signal to the bank that the seller believes in the business. If expressly subordinated, a vendor loan is even treated by the bank as partially equity-like.

The price is entanglement: the seller remains your creditor, often with information rights and consent requirements. In takeovers by existing management this construction is standard — see financing a management buy-out.

The hard limit: the prohibition on repayment of capital

Many buyers instinctively assume that the loan for the share purchase will be secured against the assets of the acquired company, and that the company will service it out of its own cash flow. In Austria this route is permissible only within narrow limits.

Under § 82 GmbHG (the Austrian Limited Liability Companies Act), shareholders may receive only the balance sheet profit shown in duly adopted annual accounts; all other transfers of assets to shareholders are prohibited. The prohibition also captures disguised forms — transactions that would not withstand an arm's length comparison, interest-free loans to shareholders, benefits granted to connected persons. And the courts scrutinise it closely, particularly in structures around acquisitions and reorganisations.

In practice this means: security granted by the target for the acquisition loan of its own buyer, a debt push down, or payments by the company towards its shareholder's acquisition debt are not structuring detail but a liability issue for the management and the bank. Such structures need to be reviewed before signing — not after closing, when the bank calls for the security to be granted.

The financing timetable: what has to be in place when

The most common cause of failed acquisitions is not a refusal by the bank but an approach made too late. A workable sequence looks like this.

Before the letter of intent you talk to your bank about the size and rough structure — without naming the target, where a confidentiality agreement requires it. The aim is an indication, not a commitment.

During due diligence the financing takes concrete shape: adjusted figures, forecast, debt service calculation, security concept, and where required the submission of the aws guarantee through the bank.

Before signing, the financing commitment is in place — or the purchase agreement contains a financing condition precedent to closing. Sellers accept such conditions only to a limited degree, which is why the second route is the weaker one.

How these steps fit into the overall process, and where the purchase price mechanism changes what is actually paid out on the closing date, is set out in purchase price mechanics and net debt.

FAQ

How do you finance a company acquisition?

From four building blocks: equity including subordinated shareholder loans, a bank loan against the earnings power of the target, a state guarantee from aws, and a portion of the purchase price left with the seller as a vendor loan or earn-out. What matters is that the adjusted earnings figure covers the debt service with a margin of safety.

Can I buy a company with no equity?

With no funds of your own, effectively not — the bank requires you to share the risk, and a purchase price financed entirely with debt normally exceeds what the business can service. What is realistic is reducing the equity requirement: through a subordinated vendor loan, mezzanine capital, a capital partner, or buying a partial stake with a later increase.

Does aws take over the loan for my business takeover?

No. aws provides a guarantee for part of the credit risk — typically 80 per cent of the loan amount, with the bank retaining at least 20 per cent. The guarantee is applied for jointly with the financing bank; business takeovers and successions are expressly eligible, including goodwill.

What does NeuFöG give a business acquirer?

It exempts them from stamp duties and federal administrative charges, from court fees for entries in the Firmenbuch, and from real estate transfer tax to the extent that the value does not exceed EUR 75,000 per transfer. The conditions are that the essential operating assets pass in a single transaction, that there is a genuine change of business owner, and that the acquirer has not been active in a comparable controlling capacity in the preceding five years.

Can the acquired GmbH secure the acquisition loan?

Only within narrow limits. Under § 82 GmbHG, transfers of assets to shareholders outside the balance sheet profit shown in the accounts are prohibited, and the prohibition also captures disguised forms. Security granted by the target for its shareholder's acquisition debt, a debt push down, or payments towards that debt therefore need legal review before signing.

When should I speak to the bank?

Before the letter of intent, with the size and rough structure. The detailed assessment runs in parallel with due diligence, and the commitment should be in place before signing. A financing condition in the purchase agreement is the weaker alternative, because sellers accept it only to a limited degree.

Does a vendor loan work like equity?

From the bank's perspective, partly yes, provided it is expressly subordinated. It reduces the amount payable at closing and signals that the seller regards the forecast as achievable. The price is entanglement: the seller remains a creditor, frequently with information and consent rights.