Selling to an EOT – A Win for Both Continuity and Tax Efficiency

Mark Cunningham, Partner, said:

The owners of The Entertainer have opted to sell to an EOT, a structure that offers both continuity for the business and a compelling tax incentive for the owner. Where the statutory conditions are met, the disposal of a controlling interest to an EOT qualifies for full CGT exemption. A benefit that is not available from a traditional third-party sale.

For a business built from the ground up, with likely little to no base cost in the shares, this is a significant financial outcome. But it’s not a shortcut. The sale will have been supported by a professional valuation of the company and HMRC advanced clearance has likely been sought.

How the Deal May Have Been Structured

The payment to the Grant family, who founded the Entertainer, will likely be staged and may involve the company taking external borrowing. From the family’s perspective, it gives an exit with a generous tax treatment, but for the senior leadership team and employees, the real work now begins.

The Business Environment – Challenges Ahead

The Entertainer has faced high energy costs, wage inflation and higher shipping costs, as detailed in their latest filed financial statements. They will likely have been further impacted by increased employment costs through national insurance rises. Consumer spending will probably continue to be suppressed by inflation and increased unemployment. There are challenges ahead for the business, but The Entertainer is innovative and has adapted well in recent years to remain highly profitable.

Why EOTs Can Be a Strong Long-Term Strategy

Mark concluded:

The EOT model, when well executed, creates a culture of ownership to drive employee motivation, innovation and long-term value. The Entertainer may help prove that employee ownership isn’t just a good exit, but also a resilient future for the business.

Key Takeaway:

For business owners considering their succession planning options, EOTs can provide a rare opportunity – a CGT-free sale combined with a model that encourages employee engagement and long-term stability. But as The Entertainer’s case shows, success depends on robust structuring, professional valuation, and a management team ready to take on the next chapter.

Would you like to know more?

If you have any questions about the above, please get it touch with your usual Blick Rothenberg contact or Mark using the form below.