Particularly with the current economic uncertainty, the long-term direction of your business should be high up on the agenda to ensure future proofing, as well as strategic continuity. It’s imperative that you are thinking about your options before you are forced to, and to take control of your exit route.There are a number of key considerations when selling and various options are available, each offering the seller, the buyer and the employees of the business different benefits. Some of the key options and considerations are summarised below.
Enterprise Management Incentives (EMI)
EMIs are often used for pre-sale planning (and staff retention) and allow key employees to have the opportunity to acquire shares through the granting and subsequent exercising of qualifying share options. In the context of succession planning, an owner might be looking to sell the business at a future date (to trade, an MBO team or an EOT) and having a strong and committed senior management team which is aligned with the interests of the business owners can be a critical factor in that process.
Management Buyout (MBO)
An MBO is a common route for exiting a business. Essentially, this is a form of sale by the owners where their senior management team steps forward to take on the business. An MBO can be a very effective way for an owner to hand over the reins of the business to a trusted management team whilst simultaneously ensuring that the current owners receive a fair price for the business. It also ensures “business continuity” for staff, customers and suppliers. An MBO can sometimes involve external investors, or the deal can be “self-funded”, often with some debt.
Employee Ownership Trust (EOT)
An EOT enables a company to become owned by its employees through the creation of a trust. The idea is that the existing shareholders sell all or a controlling stake (> 50 %) of the company to the EOT which holds the shares on behalf of the employees. The employees then become beneficiaries of the trust, which of course often ends in very motivated employees.
Finally, a trade sale is a sale to a 3rd party, sometimes to another business that operates in the same/a related industry, with buyers often seeking greater economies of scale, a diversification in their core product/service offering, or an extension to their customer base. Buyers can be privately owned companies or have institutional investors/shareholders.
Regardless of the exit route, preparing your business for the future will allow you to maximise the value that you have built up, reduce unexpected tax liabilities, and realise a return for the hard work that you, your employees, and stakeholders, have put in over the years.
If you would like to discuss succession planning or the options available, please get in touch with Graham Cunning, Corporate Finance Partner at Azets, [email protected] or call 0141 886 6644. Or, visit the website at www.azets.co.uk