Private equity and similar investor-led deals are often structured through a layered company arrangement involving a Holding Company (HoldCo), Mid Company (MidCo), and Bid Company (BidCo). While this setup might appear overly complex, each layer serves a distinct strategic, financial, and legal function.
In this post, we break down why these structures are used and what each entity typically does in a deal.
Why Use a Multi-Tier Structure?
Private equity firms structure acquisitions this way for several reasons:
- Ringfencing risk – liabilities are isolated at the right level.
- Debt efficiency – acquisition debt can be housed and serviced in the right place.
- Tax planning – particularly for interest deductibility, capital gains, and exit strategies.
- Operational control – investors and management can be layered in with clarity.
Let’s explore the typical structure in more detail.
The Role of the Holding Company (HoldCo)
HoldCo sits at the top of the stack. It’s usually owned by the private equity fund and any co-investors, and it acts as the central investment vehicle.
- Primary role: Owns the MidCo.
- Characteristics:
- No trading or operating activities.
- Sometimes used to consolidate multiple MidCos if part of a buy-and-build strategy.
- May be registered offshore for tax efficiency, depending on the fund’s structure.
The Mid Company (MidCo)
MidCo is a conduit between the HoldCo and the acquisition vehicle (BidCo). It often has a dual role – managing internal financing and creating a clean split between investment capital and acquisition debt.
- Primary role: Owns BidCo and issues debt or preference shares.
- Functions:
- Used for structural subordination of equity and debt.
- May receive shareholder loans from HoldCo or directly from investors.
- Sometimes holds intellectual property or other non-operational assets.
In larger deals, you might see multiple MidCos to accommodate different debt instruments or tranches.
The Bid Company (BidCo)
BidCo is the entity that actually acquires the target company. It’s created specifically for the transaction and is usually highly leveraged.
- Primary role: Acquires and owns the trading business.
- Characteristics:
- Takes on acquisition debt (leveraged loans or bonds).
- Merges with or becomes the operating company post-deal.
- Manages the day-to-day business, or sits directly above the operating entity if a NewCo is used.
BidCo is typically wound up or restructured upon exit.
Visual Overview
Private Equity Fund
│
HoldCo
│
MidCo
│
BidCo ──► Target Company
Practical Considerations
- Governance: Board control and voting rights are typically set at HoldCo or MidCo level.
- Exit strategy: The structure allows for cleaner exits, especially in secondary buyouts or IPOs.
- Management incentives: Shares or options are usually issued from HoldCo or a parallel management vehicle to align with exit upside.
Final Thoughts
While these structures may seem unnecessarily layered, each component plays a clear strategic role. From limiting risk to managing tax and financing, they offer the flexibility private equity needs to optimise returns and exit cleanly.
