Enness Provides Bespoke Lending Solution for Client's EOT Buyout

• Client: Specialist construction business
• Borrowing Amount: £5 million+
• Structure: Capital and interest with 30% bullet repayment
• Term: 7 years
• Security: First-ranking debenture

Employee Ownership Trusts (EOTs) have become an increasingly popular route for business owners looking to transition out of their companies while maintaining continuity for employees and the wider business. However, funding an EOT transaction can present challenges, particularly where the outgoing shareholders require a significant proportion of the consideration to be paid upfront rather than over an extended deferred consideration period.

Enness was approached by a specialist construction business that had recently completed an EOT buyout. Having approached its existing banking partner, the business had been offered less than half of the funding it required, alongside an amortisation profile that was too aggressive for its circumstances.

The timing also presented additional challenges. The business was operating in the construction sector, which lenders had viewed cautiously following the disruption caused by COVID-19. Although the company had returned to pre-COVID levels of profitability, its recent financial performance meant that the required level of borrowing remained outside the risk appetite of its incumbent lender.

It was therefore clear that a more specialist approach was required. Enness reviewed options across the high-street, challenger and specialist lending markets before determining that a specialist lender offered the greatest flexibility to structure the facility around the business’s cash flow and the requirements of the EOT transaction.

Enness secured a senior debt facility of more than £5 million, structured with capital and interest repayments and a 30% bullet repayment. The facility provided a seven-year overall term, with the amortisation profile giving the business greater flexibility than the shorter repayment structure originally offered by its existing banking partner.

The bullet structure also provided the client with several potential options at maturity. Depending on the business’s financial position at that point, the remaining balance could be repaid, amortised over a further period or potentially refinanced through a new senior debt facility. This gave the business greater flexibility when managing the remaining deferred consideration associated with the EOT transaction.

The facility also included provisions allowing for additional cash sweeps if the business continued to perform strongly. This created the potential to accelerate the repayment of the outstanding consideration as profitability and cash generation improved, while maintaining a financing structure that was appropriate for the business at the outset.

By taking a broader view of the business and considering multiple lending markets, Enness was able to move beyond the limitations of the incumbent lender and negotiate a bespoke structure around the company’s requirements. The resulting facility provided the business with access to the level of funding required while giving it greater flexibility over how the debt would be managed throughout the term.

This case demonstrates how specialist corporate finance can help businesses navigate complex ownership transitions such as EOT buyouts. The appropriate structure will depend on the company’s financial performance, cash flow, sector and the requirements of the transaction, but a bespoke facility can provide greater flexibility where conventional lending does not meet the required terms.

If you or your clients are considering an EOT buyout and require funding to support the transaction, speak to a corporate finance specialist to discuss the available options.

Risk Warning:
Corporate borrowing carries risks. Businesses should ensure that debt remains affordable throughout the facility term and that a realistic repayment strategy is in place for any bullet repayment. If the facility is secured and the borrower fails to meet its obligations, the lender may take enforcement action against the assets provided as security.

Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal or tax advice. EOT transactions can have complex legal and tax implications, and independent professional advice should be obtained. Finance is subject to status, underwriting and lender criteria. Terms and availability will vary depending on individual circumstances and the proposed transaction.