We provide independent valuations of companies being sold to EOTs and can support trustees who need to satisfy themselves that the consideration does not exceed market value.
When is this valuation required?
- Owners are considering an EOT as a succession route.
- The price and payment terms of an EOT sale are being set.
- Trustees need independent support that the price is not more than market value.
- An EOT transaction is being reviewed after completion.
Who instructs us?
- Selling shareholders and their advisers
- EOT trustees and trustee boards
- Accountants and corporate solicitors structuring the transaction
What exactly is valued?
The shares being sold to the trust, which for most EOT transactions is a controlling interest. The valuation considers the company as a going concern and the value of the controlling stake on a market value basis.
How is value assessed?
We value the company using earnings-based approaches cross-checked against market evidence and, where appropriate, discounted cash flow analysis. Because the trust will usually pay from future profits, we also look closely at forecast cash generation, so that the price and the payment profile can be considered together.
The valuation stays independent of the parties' wish to complete the deal. Trustees in particular need a valuation that has tested the sellers' assumptions rather than adopted them.
How the approaches are usually weighed
Typical
- IncomeEarnings-based, with forecast cash generation testedUsual starting point
- MarketMarket evidenceCross-check
- AssetAdjusted net assetsWhere relevant
The seller's and the trustees' perspectives
Sellers want a price that reflects what the business is worth. Trustees must act in the interests of the employee beneficiaries and should not agree to pay more than market value. In recent years the rules have placed more emphasis on trustees satisfying themselves on this point. An independent valuation, with reasoning trustees can follow and question, supports that decision.
Deferred consideration and affordability
Most EOT purchases are funded by the company making contributions to the trust over several years. A price can be within market value yet still place too great a strain on the company's cash flow. We can analyse forecast cash generation and the proposed payment schedule alongside the valuation, so both questions are answered.
What factors influence the result?
- Maintainable profits
- The earnings that will fund the deferred consideration.
- Cash generation
- Working capital and investment needs that reduce cash available to pay the price.
- Management continuity
- Who will run the business once the sellers step back.
- Debt and surplus cash
- Cash in the business at completion is often used for an initial payment.
- Payment profile
- How long deferred payments run and what happens if trading weakens.
What information is required?
- Historic and current-year accounts
- Forecasts covering the deferred payment period
- The proposed transaction terms and payment schedule
- Details of management succession arrangements
- Articles and existing shareholder agreements
We send a tailored information request once the scope is agreed.
What report will you receive?
We provide a valuation report suitable for the sellers or the trustees, setting out market value, the method and key assumptions, and, where instructed, an analysis of the proposed payment schedule against forecast cash flows.
See types of business valuation reports for how the scope of each type differs.
Timing and cost
How long will it take?
EOT transactions typically take a few months from inception to completion. Commissioning the valuation early helps shape a price and structure that both parties can support.
How much does it cost?
Fees reflect the size and complexity of the company and whether affordability analysis is included. We agree the scope with whoever instructs us and confirm the fee in writing.
How our fees are set →Frequently asked questions
What is an employee ownership trust?
A trust that holds a controlling interest in a company for the benefit of its employees. Owners can sell to an EOT as a route to succession, with the price usually paid over time from the company's profits.
Why does an EOT sale need an independent valuation?
Because the trustees must not overpay, and the sellers and their advisers need to show the price is a fair market value. An independent valuation provides evidence for both.
Can the same valuer act for sellers and trustees?
Trustees often prefer their own independent view. Where we are instructed by one side, we make this clear, and we can provide an independent valuation that both may rely on if the terms are agreed in writing.
Are there tax reliefs for selling to an EOT?
There can be, subject to detailed conditions that have changed over time. These are matters for your tax adviser. We provide the valuation that such advice will rely on.
What happens if the company cannot afford the payments?
That depends on the transaction documents. Analysing affordability before completion reduces the risk, which is why we recommend considering it alongside the valuation.
