How to value growth shares
We explore the various methods for calculating valuations for growth shares and the right structure for a growth shares scheme.
Thinking about what happens next? A sale is not your only option
Most business owners spend years building something they are proud of. Deciding what happens next is one of the biggest decisions they will make, and a sale to an external buyer is not always the right answer.
For owners who want continuity of leadership, who want to protect the culture they have built, or who want to reward the people who helped create the value in the business, there are structured alternatives worth understanding before a decision is made.
A Management Buyout (MBO) and an Employee Ownership Trust (EOT) are two proven routes. Both can deliver a strong value outcome for the outgoing owner and offer advantages that a sale to an external buyer typically cannot.
If you have been reading about vendor loans and how they work in ownership transactions, this page will help you understand the broader structures they sit within, and which might suit your situation.
The right structure depends on your priorities, the shape of your business, and the people involved. Below we set out how each route works, who it suits, and what to consider before moving forward.
Route one: Management Buyout (MBO)
A Management Buyout is a transaction in which the existing management team acquires the business from the current owner. Rather than selling to an external buyer, you sell to the people who already run the business and understand it best.
An MBO tends to suit owners who have a strong, motivated management team in place and who want continuity of leadership and culture after they exit, without the disruption that an external acquirer can bring. It is also worth considering where selling to a competitor or buyer would put client relationships, staff, or the character of the business at risk.
What business owners and finance directors often ask us
- Whether the management team has the appetite and the financial capacity to complete a buyout.
- How an MBO gets funded and what a realistic deal structure looks like, including the role of vendor loans, deferred consideration, and external debt.
- How to value the business fairly for both sides when the buyer is someone they have worked with for years.
- Whether Business Asset Disposal Relief applies to the seller’s gain, and what the wider tax position looks like on exit.
- How to manage the transaction process so the business continues to operate effectively throughout, and completion does not damage the relationships on which the deal depends.
Route two: Employee Ownership Trust (EOT)
An Employee Ownership Trust transfers ownership of the business to a trust held for the benefit of all qualifying employees. The outgoing owner sells at least 50% of their shares to the trust, typically receiving the proceeds over an agreed period. The business continues to operate independently, with staff as the ultimate beneficiaries of its success.
An EOT tends to suit owners who want to protect the independence and values of the business after they leave, and whose exit should mean something for the people who helped build it. It works well where a sale would result in restructuring or redundancies the owner is not comfortable with, and where there is a stable, engaged workforce and a management team capable of running the business under the trust structure.
What business owners and finance directors often ask us
- How an EOT is funded, and how the outgoing owner actually receives their money when the trust does not have the capital to pay upfront.
- Whether they qualify for the 50% Capital Gains Tax relief available on qualifying EOT transactions, and the conditions that must be met to access it.
- Whether their current shareholding structure is compatible with an EOT and what changes might be required beforehand.
- How the trust is governed after completion, and who has decision-making authority once the owner has stepped back.
- What happens to the business and its staff if the employee ownership model does not work in practice.
- How to prepare the management team and workforce for ownership so the business does not stall during the transition.
Not sure which route is right for you?
An MBO and an EOT are different structures with different advantages. The right one depends on your goals as an owner, the shape of your business, and the people involved. There is no single correct answer.
The Price Bailey team works with business owners and finance directors at businesses of all sizes who are thinking through an ownership transition. We will give you an honest view of which route suits your situation, what the process involves, and what you need to have in place before you begin.
How we help
If you are planning an MBO or EOT, your wider Corporate Tax position, group structure, and financial reporting will all be relevant to the transaction. Businesses approaching a significant ownership change often benefit from reviewing these alongside the transaction structure itself.
Speak to us about corporate tax, transaction services, or our broader advisory offering if any of these are relevant to your situation.
Speak to our exit planning team today
We can help
Contact us today to find out more about how we can help you
Read our insights here
R&D tax credit calculator
Our R&D tax credit calculator helps you to estimate what R&D tax credits could be worth to your business. The information is based on the R&D tax credit rates as of 1 April 2024
How will the Premier League’s Squad Cost Ratio affect football club valuations?
How is the Premier League's Squad Cost Ratio reshaping football club valuations? Price Bailey's Valuations Partner explains the impact on revenue, stadiums and academies.
Frequently asked questions about winding up a trust
These FAQs answer some of the common questions trustees may have when considering whether and how to wind up a trust.