Enness Provides Bespoke Lending Solution for Client's EOT Buyout
15th January 2024
Employee Ownership Trusts (EOTs) have quickly become one of the most popular mechanisms by which a director may exit a business, pairing a slew of taxation benefits with continuity in company culture and leadership. However, perhaps the biggest drawback of an EOT buyout remains the vendor's access to capital – many traditional lenders cannot provide a lending structure appropriately supportive of the overall transaction. This leads to directors either opting for an incredibly draw-out deferred consideration period or, indeed, opting for a different sale option altogether. This case study outlines how Enness were able to provide our client with a bespoke facility designed to enable a specialist construction business to accelerate its now previous directors' cash-out through a bespoke structured cashflow facility.
- Client: Construction
- Borrowing Amount: £5,000,000 +
- Structure: Capital and interest with 30% bullet
- Term: 7 years
- Security: 1st Rank Debenture
In this case, Enness was approached by a specialist construction business, which had recently completed its EOT Buyout. With the market recently having settled post COVID, the client approached us in Q4 of 2023, having already approached their own business banking partner. They had been offered less than half of the figure they sought, with a far too aggressive amortisation profile. This was partly due to the fact that construction, as an industry, is fundamentally considered a high-risk moving into 2024. Furthermore, the business had only recently returned to pre-COVID levels of profitability, putting the desired lending figure outside of their incumbent banking partners' risk appetite. It was clear from the outset that we would need something specialist and bespoke on this one.
Enness were able to leverage our market expertise to provide a comprehensive overview of suitable lending options, from high street to challenger to specialist. While we had considered options from all three arenas, it became clear that the specialist market was where this transaction was best suited, providing us with the most freedom to structure a facility over a much longer term with a bespoke amortisation profile.
Enness secured the client a senior debt facility of over £5,000,000, with a 30% bullet repayment due at the end of a five-year amortisation period. This would allow the client to either pay down the remaining funds upon maturity, amortise the outstanding debt over a further two years, or wrap up the remaining debt into a new senior debt facility to draw out any remaining differed consideration. The client was pleased with the scope of options this provided them with, considering the period across which they were borrowing, allowing the business to remain agile and adaptable throughout the term. Furthermore, the lender's covenants would allow for additional cash sweeps moving forward, should the business continue to grow at the level of profitability they had already demonstrated, providing scope for further cash-out acceleration.
Enness's unparalleled market expertise, patience, and partnership-led approach to the brokering process allowed us to craft a bespoke solution that suited the client's needs better than any other available product. Our unprecedented market access enabled us to ensure that we had considered every option available. It allowed us to present the client with the widest range of possibilities, giving us an anchor by which we could generate this specialist solution.
If you or your clients are interested in exploring borrowing solutions supporting an EOT buyout, please do not hesitate to get in touch.
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