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Glyn Hopkin Group recently announced its sale to become an employee ownership trust (EOT).
The group, which has a £550m turnover, has 25 sites and employs more than 800 people, making it the largest EOT transaction in the franchised motor retail sector.
When business owners are planning for a future exit, there are various options to consider. These include the traditional trade sale route, or options involving those currently in the business such as a management buyout (MBO) or a sale to an employee ownership trust (EOT).
With increased uncertainty around capital gains tax (CGT) rates following the general election, an EOT is a tax-efficient way of selling shares in a business. There are also significant advantages, as provided certain conditions are met, the capital gain arising is tax free.
On a practical level, thought needs to be given to how the purchase will be funded and the timeframe. Generally, the vendor will require an ‘upfront’ payment of consideration, which may be debt-funded, with the balance of consideration being deferred and paid out of future profits of the business.
This route will only suit profitable businesses which can secure and afford the debt or can self-fund entirely. Whilst the tax benefits are tempting, it is important to make sure that the business objectives are aligned with long-term employee ownership, as unwinding the structure can be costly from a tax perspective. For franchised motor retailers, they will also need to consider the views of their manufacturing partners.
Alison Ashley is head of motor retail with RSM UK