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Supporting an Employee Ownership Trust as part of an MBO
We were initially approached by P.A.C. Electrical Services Limited in late 2018, following a recommendation from their accountant. Trading as P A Collacott & Co, the company is a leading firm of electrical contractors and building management system engineers. Established in 1978, the company has offices in Cambridgeshire and Abingdon, Oxfordshire.
As the founders approached retirement and gave thought to succession planning, they were initially considering a sale of their company and we were subsequently engaged to act as their advisors in early 2020 but in light of COVID-19, the sales process was halted.
However, by July 2020, consideration was being given to alternative exit methods other than a trade sale which included employee ownership and management buyout options. We worked with the founders and presented various ownership structures; it was decided that a combination of an EOT and an MBO offered the best solution for the shareholders and the business.
We undertook a valuation of the company, analysing past financial results and reviewing the current pipeline of work to get an indication of forecast performance for the business. Once the EOT and MBO scenario was agreed in broad terms, we gave presentations to the management team providing an introduction to the core concepts, an overview of financial performance and valuation and the practicalities of investment.
By structuring the transaction such that the EOT took place immediately ahead of the MBO, it was possible to effectively offer the shares to the management team at a discount to reflect the Company’s commitment to making the repayments to the vendors on behalf of the EOT. In doing so, it became more affordable for managers to purchase shares and to benefit from future growth in the business both through their direct shareholdings and indirectly as employees through the EOT.
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