EOT Deferred Consideration Insurance (DCI)
FAB Assurance is a proud Supporter Member of the Employee Ownership Association
"If I die, that should be the only bad thing that happens"
An Employee Ownership Trust Buy-Out ‘EOT’ is now the exit route of choice for some privately-owned businesses. Traditional bank funded MBOs are harder to achieve and the price obtained in a trade sale may disappoint.
The typical EOT may involve some element of ‘deferred consideration’.
There is a paradox at the core of many EOT deals: The Vendor does not leave the scene. Indeed, his or her presence may be essential to the repayment of the debt and final completion of the transaction.
If the Vendor dies the consequences can be severe:
- the Company has a highly geared balance sheet
- the ability to generate cash flow and repay debt is impaired
- the Vendor’s family may have an IHT liability on the consideration
- the Trust may have shares with no real value … and little incentive to dig in to save the Company
DCI can take various forms but has as its core Loan Insurance so that, if the Vendor dies, the EOT is provided with the cash to redeem the deceased Vendor’s outstanding deferred consideration. All parties benefit…
- The Vendor’s heirs receive cash and are free and clear.
- The EOT has a less geared balance sheet.
- The Trust enjoys a free uplift in the equity value of shares.
Happy clients are the best salesmen. We are pleased to provide contact details for clients and their advisors who have worked with FAB.
The following cases illustrate what we do and are anonymised to preserve confidentiality.