EOT and MBO alternative

If you are considering an EOT or a management buyout

Both routes exist because owners want the business to continue in the hands of people who care about it. That instinct is right. The question is whether the structure you are being shown actually delivers it, or quietly leaves you carrying the risk for another five years.

Why owners end up looking at these

An owner who has built something over decades rarely wants to hand it to the highest bidder and stop thinking about it. They want the team looked after, the clients looked after, and the name to still mean something locally. An employee ownership trust and a management buyout both promise that, and for some businesses one of them is genuinely the right answer.

The employee ownership trust has real advantages, including a well known tax treatment, continuity for the team, and a story everyone can feel good about. The management buyout keeps the business with people who already know it.

The difficulty with both is usually the same one, and it is rarely discussed early enough. Plenty of trusts and buyouts do raise bank or private credit to fund part of the price at completion. Most still leave a substantial part deferred, because a lender will only go so far without an equity sponsor behind it. That deferred part is financed by you, out of trading you no longer control.

That can work well. It can also mean an owner who wanted to stop is left waiting on payments the business has to generate itself, while no longer controlling how it is run. Deferred payments are normal in most sales including ours. The question that matters is how much reaches you at completion and how much you are still carrying afterwards. Where most of the price is still owed and the business is the only source of it, a difficult couple of years lands on you.

The questions worth asking before you commit

Where is the money actually coming from

Partly from a lender, in the deals that can support borrowing, and the rest from the future profits of the business you are selling. Ask what proportion is paid at completion, what is deferred, and what that deferred part depends on in years two to five.

How long are you still exposed

Most sales defer something, so the question is how much and for how long. Ask what proportion of the price you are still owed a year after completion, where that money ranks if the business has a difficult two years, and what you could actually do about it if the payments stopped.

Who is actually going to run it

An employee ownership trust changes who owns the business, not who leads it. If there is no successor today, a trust does not create one. This is the point that gets missed most often.

Can the management team carry it

A management buyout asks capable managers to become owners, to take on personal risk, and often to take on debt. Some want that. Many discover during the process that they wanted a good job rather than a business.

What does it cost to run afterwards

A trust brings a trustee board, governance obligations and ongoing administration that a firm of this size has not carried before. It is manageable, but it is not free and it is not nothing.

What happens if it does not work

Unwinding an employee ownership trust is difficult and unwinding a management buyout that has gone wrong is worse. Both are much harder to reverse than deciding not to proceed in the first place.

When each is the better answer

We would rather you chose the right route than chose us.

An EOT or MBO is probably right if

There is a management team who genuinely want to own and lead the business and step up to the responsibilities and commitments that brings, not just keep their jobs
The business generates enough cash to pay you out without being starved of investment
You are comfortable waiting for a substantial part of the money, knowing the business itself is what has to generate it
Employee ownership matters to you for its own sake, beyond the tax treatment

A sale to us is probably right if

There is no internal successor, and a change of ownership alone will not create one
You want most of the price at completion, and whatever is deferred to be defined and time limited rather than open ended
You want to genuinely stop rather than stay on to protect your own deferred payment
You want the team and clients looked after, but not at the cost of carrying the risk yourself

An employee ownership trust changes who owns the business. It does not answer who is going to run it on Monday.

Common questions

Is an EOT better than selling to a buyer like you?

For some businesses, yes, and we will say so. Where there is a leadership team ready to run the firm and enough cash generation to pay you out sensibly, a trust can be an excellent outcome. Where there is no successor and the money depends on future trading you will not control, it deserves harder questions than it usually gets.

My management team want to buy the business. Where do you fit?

Possibly nowhere, and that is fine. If they can fund it and want to lead it, that is a good outcome. If they want continuity and a good job rather than ownership and personal risk, a buyout can put people in a position they did not really want, and that is worth establishing early.

Can you pay what an EOT would pay?

The headline number in a trust is often higher, because much of it is deferred and depends on the business earning it. Our offers carry deferred elements too, so the honest comparison is not deferred against not deferred. It is what reaches you at completion, how much is still owed afterwards, and what has to go right for the rest of it to arrive.

How is your funding structured?

We raise funds for each acquisition individually rather than investing from a committed fund. That means each deal is matched to investors suited to that business and to the plan for it, rather than squeezed into a mandate agreed years earlier, and there is no fund clock running in the background. You will know precisely where our funding stands before you are asked for exclusivity.

Start a conversation

If any of this sounds like your situation, let us buy you a coffee. We would like to hear where you are, what you are thinking, and work out together whether we are any use to you.

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