Should I consider an MBO, MBI or Employee Ownership Trust (EOT)?

Short answer – yes! You should consider all options when in your planning phase. There are a wide range of options that deviate from the typical “sell to another trading business” route, which may or may not be right for you and your business. MBOs, MBIs and EOTs are a few of the more common options, and are explained in brief below:

MBO – Management Buy Out

If you have a strong, capable tier of ambitious senior management that runs the day-to-day operations of your business, then these individuals may be the right people to take ownership of it. An MBO allows the participating senior team the opportunity to create substantial value for themselves over a period of time through the growth of the business, while allowing existing shareholders to achieve their personal goal of an exit and to realise the value of many years of their hard work. Often, the MBO team will need to seek financial support, either from a bank or other type of lender to fund the buyout, so will themselves need expert advice to achieve this.

A common misconception is that the MBO team will have to fund the deal themselves.  This is seldom the case.  They will need to take some financial risk, but not the sort of sums that will keep them awake at night – rather an amount that will get them out of bed in the morning and into work with a spring in their step!

MBI – Management Buy In

In order to skip the ‘start-up’ phase of a business, a team of successful managers may decide to look for an acquisition in their sector, with the intention of buying and then running the business themselves. These professionals can bring years of sector specific experience, often taken from larger corporates and will typically already have the support of funders before pursuing opportunities. Sometimes, Private Equity (PE) funds may have an individual or possibly a team of managers in mind when considering new investment targets and may wish to ‘parachute’ them into a business accordingly.

EOT – Employee Ownership Trust

Sometimes called ‘the John Lewis model’, an EOT can be one of the most rewarding of all sale options. An owner wishing to reward their staff after years of excellent work together can give them the opportunity to take ownership of the very business in which they work. The combination of a friendlier transaction environment and compelling tax breaks can also make the sale particularly financially rewarding for the existing shareholders as many other options.

EOTs are a subject which is particularly relevant for us; in 2022 we became an employee-owned business under the EOT model.