OpCo/PropCo: what happens to the factory site in an industrial SME deal
The operating business sells on an earnings multiple; the plant is valued on a yield. Where the lease lands decides more of the outcome than either headline number.
Most European industrial SMEs own the ground they operate on, and most buyers do not want to buy it. That mismatch is resolved by an OpCo/PropCo split: the operating business is sold on an earnings multiple, the property is valued separately on a yield, and a lease is written between them.
This is one of the least-discussed structuring decisions in mid-market manufacturing, and one of the few where an owner still holds real leverage after price has been agreed.
Why do buyers want the property out of the deal?
Three reasons, and only one of them is about the property itself.
Return math. A private equity or buy-and-build acquirer underwrites an operating business at, say, 6–8× EBITDA. Real estate in the same transaction gets underwritten on a capitalisation rate — European industrial and logistics yields ended 2025 around 5.25%, equivalent to roughly 19× rent. Bundling a low-return asset into a higher-return vehicle drags the blended IRR down. The buyer would rather not pay equity for it.
Balance sheet efficiency. Sale-and-leaseback monetises close to 100% of an asset's value, against the 50–60% typically achievable through mortgage debt. In a credit environment where European banks have tightened standards, that gap is the whole argument. Industrial and logistics now accounts for over 60% of European sale-and-leaseback activity, with specialised production plants especially favoured because relocation costs make the tenant sticky.
Flexibility they don't have to explain. A buyer who does not own the site can consolidate, relocate or expand without a property disposal. For a buy-and-build platform stitching together several plants, that optionality is the point.
What are the actual structures on the table?
| Structure | Who ends up owning the site | Effect on headline price | Where it breaks down |
|---|---|---|---|
| Property included in OpCo | Buyer | Highest gross price, lowest multiple optics | Buyer pays equity for a 5% asset; often refused outright |
| Seller retains PropCo, leases to OpCo | Seller / family | Lower headline price, recurring rent income | Rent must be arm's-length or the QoE adjusts EBITDA anyway |
| Sale-and-leaseback to a third party at close | Institutional investor | Cash released at completion, funds part of the price | Long lease term, indexation and dilapidations bind the OpCo |
| PropCo sold to buyer separately | Buyer, via a second SPV | Two valuations, two tax treatments | Adds a second diligence workstream and timeline risk |
| Partial carve-out (plant sold, surplus land retained) | Split | Preserves development upside for the family | Access, easements and shared services get messy |
How does the rent quietly reset the valuation?
This is where owners lose money without noticing. If a company has been operating rent-free in a family-owned building, its reported EBITDA is overstated by the market rent it never paid. Any competent quality of earnings analysis will impose a notional market rent as a pro-forma adjustment — and at a 7× multiple, €180,000 of annual rent removes roughly €1.26m of enterprise value.
The inverse trap is just as common: an above-market rent set for tax reasons depresses EBITDA and understates the business. Either way, the number the seller has been reporting for years is not the number the buyer will use. We cover the mechanics of these normalisations in quality of earnings for an industrial SME.
The practical implication is unglamorous. Establish an arm's-length rent two to three years before any process starts, so the audited accounts already show the normalised figure. It removes an argument at exactly the moment arguments are most expensive.
What should an owner protect in the lease?
The lease is the seller's residual instrument of control, and it survives long after the sale closes.
- Term and break rights. Institutional buyers of industrial property want 15–20 years. An OpCo signing a 20-year commitment on a site it may outgrow is accepting a liability, not just an expense.
- Indexation. Fixed uplifts versus CPI-linked behave very differently across a cycle. Caps and collars are negotiable and rarely negotiated.
- Repair obligations. A full repairing and insuring lease transfers the roof, the effluent plant and the substation to the operating company. In a tannery or a finishing plant, that is a material number.
- Change-of-control consent. If the PropCo landlord can block or price a future assignment, the OpCo's next transaction runs through the family. That can be protection or an obstacle depending on who is holding the pen — the same logic that applies to certifications and change of control.
- Environmental liability split. For any site with a tanning or chemical history, allocation of pre-completion contamination liability matters more than the rent. It is usually resolved with indemnities and a baseline survey, not with lease drafting.
Does the split change who is interested in the business?
Yes, and usually in the seller's favour. Removing the property lowers the equity cheque, which widens the buyer universe to search funds and smaller platform acquirers who could not have funded the combined asset. It also sharpens what the buyer is actually acquiring: process capability, certifications, customer relationships and the ability to run several product verticals off one industrial base — the argument set out in multi-vertical manufacturing platforms and in the case for acquiring material suppliers upstream.
For a cross-border acquirer, a clean OpCo with a documented lease is markedly easier to approve at investment committee than a Spanish operating company holding local real estate on its balance sheet. That point compounds with everything else covered in cross-border M&A with Spanish industrial SMEs. And where full ownership is not the objective at all, the property question interacts directly with the structures discussed in minority stake versus full buyout.
FAQ
Is an OpCo/PropCo split always worth doing?
No. Where the site is genuinely irreplaceable — specialised effluent treatment, grandfathered permits, a location that cannot be re-permitted — separating ownership can introduce more risk than the capital release justifies. An LWG Gold certified tannery with a purpose-built water treatment line is the textbook example.
Who pays the transfer taxes on the property leg?
It depends on jurisdiction and whether the transfer is asset or share based. In Spain, transferring real estate inside a share deal can still trigger transfer tax under anti-avoidance rules where the entity is property-rich. It is a specialist question and should be modelled before the structure is fixed, not after.
Does retaining the PropCo keep the family involved in the business?
Only as a landlord. It provides income and a seat at certain conversations, but no governance rights over operations. Owners who want continued influence over the business itself should look at equity structures rather than property.
How early should this be decided?
Before the information memorandum. The rent assumption flows into the EBITDA the entire process is built on, so deciding late means re-cutting the numbers under time pressure.
TL San Martín is a third-generation tannery in Elda, LWG Gold certified under the manufacturer standard, operating its own plant and an AI-driven sourcing and trend platform across footwear, leather goods, bedding, marine and hospitality lines. More on the house and how it is run. The company maintains open conversations with partners and investors who share its view of industrial manufacturing in Europe. Confidential contact: jorge@tlsanmartin.com.
Sources: OpCo/PropCo financing — Lexology · Sale-leaseback transactions in M&A · Sale and leaseback in European industrial property — Property Forum · Net leases and corporate treasury — Freshfields