EOT Financing For Employee Ownership Transition

Employee Ownership Trusts (EOTs) are gaining prominence as an ethical and value-driven model in the modern business world.

Our team recently facilitated a complex financial transaction to support a healthcare company's transition to this innovative ownership structure, demonstrating our expertise in handling intricate corporate finance scenarios.

The Scenario

Our client, a London-based healthcare company, was undergoing a significant ownership transition.

The existing sole shareholder had decided to sell 60% of their stake to a newly established EOT (Employee Ownership Trust), effectively transferring majority ownership to the company's employees.

However, to facilitate the transition, they needed financial support.

The key aspects of the situation were:

• Total valuation of the 60% stake: £20.9 million
• Immediate funding requirement: £5 million
• Remaining £15.9 million to be paid from future profits
• Complex legal and financial structure involving an EOT

The Challenge

The primary challenge was to secure £5 million in debt financing to facilitate the initial payment to the exiting shareholder. This transaction needed to be structured in a way that:

• Complied with EOT regulations
• Minimised risk for all parties involved
• Ensured the ongoing financial health of the business
• Provided flexibility for future profit-based payments

The Solution

After a comprehensive analysis of the situation and consideration of various financing options, our team devised a bespoke solution:

• £5 million raised
• Unsecured debenture-only loan
• Placed as a legal charge over the entity
• With the borrower listed as the company itself, not the EOT

Key features of the solution:

• The loan was structured as company debt, allowing the trustees to make decisions about using the funds to pay the exiting shareholder.
• The unsecured nature of the loan, with only a debenture over the entity, reflected the strength of the company's financial position and future prospects.
• This structure allowed for the remaining £15.9 million to be paid out from future profits, aligning the interests of the exiting shareholder with the company's ongoing success.
• This deal showcases our ability to arrange complex financing solutions that balance the needs of exiting shareholders, incoming employee-owners, and the ongoing business.

We've not only helped our client achieve their immediate financial goals but also supported their move towards a more ethical and employee-centric, long-term business model.