Intercompany flows

Definition

Many Benelux SMEs are set up across multiple entities: an operating BV/SRL where the business runs, a management vehicle through which the owner invoices themselves, a real-estate vehicle that owns and rents premises to the operator, possibly an intermediate holding. Financial flows run continuously between these entities: management fees, rent, loans, services.

For M&A this is a minefield because the buyer typically only acquires the OPERATING entity. The related-party flows disappear or get replaced with arm's-length contracts. The normalisation: replace every intercompany flow with what an independent third party would charge. Above-market rent to the real-estate vehicle = boost EBITDA. Below-market management fee from the owner = reduce EBITDA.

Worked example

An Antwerp manufacturer runs €500k EBITDA. The real-estate vehicle (same owner) leases the premises at €120k/year. Market check: comparable premises in the region run €80k. Normalisation correction: +€40k on EBITDA. Meanwhile the management vehicle (same owner) invoices €60k of advisory fees where the market rate would be €100k. Normalisation correction: -€40k. Normalised EBITDA = 500 + 40 - 40 = €500k. Coincidentally identical here, often not: and without the exercise the buyer would have left €40k of EV impact on the table.

When it matters

In EVERY multi-entity SME. Buyer DD always surfaces this; sellers who normalise proactively preserve credibility and can defend their adjustments. Without preparation at the DD table = price chip.

Frequently asked

Which intercompany items should I normalise?

Four categories: (1) rent and property costs to related parties, (2) management fees and consultancy, (3) royalties and IP licences, (4) loans and intercompany interest. Each one: replace with market rate.

How do I prove an intercompany flow is at market?

With external benchmarks: real-estate rents from public registers, salary surveys for management fees, royalty databases for IP. When in doubt under tax lens: a transfer-pricing report from Big 4 or specialist firm.

What if I have no intercompany flows?

Then this normalisation is irrelevant: single-entity SMEs skip this step. For year-end accounts: check if there are related-party disclosures in the notes. No disclosure = safely assume no intercompany flows.