Given the uncertainty, cost of financing, and rigorous due diligence processes of a challenging M&A environment, a growing number of businesses are opting to leverage the government’s EOT legislation to design an exit that works for them. But will EOTs become the new norm?
LAVA’s Millie and Claire weigh in on this trend, drawing from their recent experience with our AIRDAT and Greens deals.
Control, culture and continuity: Millie on AIRDAT’s EOT transition
AIRDAT, a leading provider of airport safety system and training services, initially had a potential acquisition deal in the pipeline. However, after this fell through, our team stepped in with a fresh perspective.
Recognising AIRDAT’s progressive workplace culture and ethos, Millie, central to the transition, advised an innovative EOT structure as the new route. Here, she shares her insights.
Given the current complexities in the M&A landscape, how do EOTs provide vendors with the opportunity to reclaim control?
In this unpredictable M&A environment, EOTs offer a unique advantage. They enable vendors, with the help of their advisors, to collaboratively set and manage a sustainable timetable for the transition.
Vendors can also shape the team they’re handing over to. With AIRDAT, Charles, the company CEO, took this opportunity to reward those instrumental in AIRDAT’s growth, restructuring his management team accordingly.
AIRDAT places a high value on workplace culture. How important is culture in making EOTs a viable option for businesses, and what role does it play in EOT transitions?
Workplace culture plays a critical role in EOT transitions. Vendors handing over control, often without an immediate major cash payment, must really trust the culture they’ve nurtured. They need to feel confident that employees will remain motivated and committed to carrying on the business’s legacy.
How does the UK government’s EOT legislation empower companies to ensure the continuity and legacy of their business?
Recognising the benefits beyond just financials, and inspired by the Nuttall Review, the government developed legislation to create a smoother transition through EOTs. It enables vendors to stay involved in the business, ensuring a gradual handover of day-to-day operations from them to the employees.
With traditional M&A avenues often being more formulaic, how does LAVA’s embrace of the EOT demonstrate the team’s creative thinking in structuring business transitions?
Our focus always lies in aligning with our clients’ objectives and maintaining an open-minded approach to achieving them. Many clients seek a partner to drive growth and are seeking external support, making private equity an ideal solution. Others see the value in joining a larger organisation to help their team tap into new markets, where trade sales become a great option. In AIRDAT’s case, the pivotal role of team culture and their own exciting growth trajectory meant an EOT was the best fit.
For us, creative thinking involves exploring all options available. Even with what might be seen as more traditional deals, we aim to craft a process that is creative and dynamic.
Steering legacy and loyalty: Claire on Greens’ EOT pathway
Greens, with its legacy of over 25 years under the stewardship of Mark and Tricia Player, has always been at the forefront of print and digital communication services. With succession on the horizon, the Players’ commitment to their workforce and the company’s ethos encouraged them to think outside the conventional M&A box.
Claire, leading the transition, discusses the considerations that shaped Greens’ move towards an EOT.
While PE and trade consolidations are still the mainstay, when do you feel EOTs offer businesses like Greens a more tailored exit strategy?
EOTs emerge as a great solution when an owner wants to step back without disruption and has a strong team below. As Millie has explained above, it’s particularly fitting when there’s a great culture and loyal workforce that shareholders want to preserve, as it allows the team to be motivated through an employee-owned framework and to continue pursuing their growth strategy.
When it’s not the right time to sell to PE or trade because of growth, team dynamics, or buyer timing, a sale to EOT also extracts value while maintaining a solid operational dynamic and managerial flexibility.
From your work with LAVA’s past projects, can you highlight the unique advantages of EOTs, perhaps making transitions smoother than traditional M&A routes?
EOTs offer control over the process, involve fewer third parties, and can be more streamlined, typically completing in 8-12 weeks. An EOT also limits the need for due diligence unless there is a refinancing process where external due diligence would be required for the funders.
How does LAVA employ its forward-thinking approach to prepare businesses for success during and after an EOT transition?
We work closely with owners pre-deal to identify their best team and help design an employee incentive scheme, collaborating with other advisors to implement it. Additionally, we help in shaping a growth plan, guiding an M&A strategy, and introducing businesses within the industry to each other, allowing them to share valuable insights from their own EOT experiences.
How do you see the role of EOTs adapting alongside the traditional M&A methods in the future UK market?
The rise in EOT transactions can’t be ignored. The adaptability and the successes they’ve demonstrated make them an emerging favourite. But it’s helpful to remember that EOTs don’t always mean a full transition. Vendors might choose to sell just over half their stake to the trust, potentially even partnering with PE firms. This flexibility, combined with the growing interest of PE firms in EOTs, creates a dynamic hybrid model for future transitions.
Navigating the future: reflecting on EOTs rising significance
In the ever-changing world of M&A, EOTs are carving out a spot as a valuable option for companies looking to shape their own path forward. Their growing popularity is attributed to the control they offer business owners, their role in preserving workplace culture, and their capacity to protect the legacy of the company.
EOTs, however, are just one of the many innovative strategies we at LAVA employ to help businesses succeed in today’s diverse market. Our approach is both flexible and creative, ensuring we tailor the right deal to the particular requirements of each client. When you partner with us, you receive a bespoke solution that supports a seamless transition aligned with your company’s values and vision.
If you’re interested in innovative and tailored exit strategies, our team is ready to offer expertise and guidance for your journey. Reach out to our team today.