When selling shareholders’ post-deal plans differ, patience is needed to achieve an outcome that suits all, says Tom Lethaby of RVE Corporate Finance.
What was the deal?
The sale of Goodwater, a national water treatment and hygiene specialist services business based near Reading, to an employee ownership trust (EOT). The deal was in the £2m-£10m range and completed in October 2024. Four director-shareholders – brothers Martin and Chris King, Miguel Garcia and Frank Butterworth – owned the business equally following a 2019 buy-out from its original founders. In the subsequent five years the business grew, they paid off the vendor debt and generated surplus cash in the business.
How were you introduced to the deal?
Through Trevor Gibbins, the founder-director of Thames Valley-based consultancy Secantor, which provides outsourced senior finance resources. He is a non-exec at Goodwater and was helping prepare the business for exit – making sure the financials were attractive and building strategy, as well as having a management succession plan. We had our first presentation to Goodwater in April 2024 and completed six months later, ahead of schedule, to come in ahead of the autumn Budget. An MBO with the next tier of management was an alternative, but after going through the pros and cons with the owners and management, they decided employee ownership was the way to go.
How was the deal structured?
We like to think creatively to ensure a transaction works for everyone. Typically, all four shareholders would sell to an EOT with a small up-front cash payment, with the balance payable over a five-to-six-year earn-out period. However, Frank wanted to retire, while the other three were not ready for that. The cash in the business was used to buy back Frank’s shares prior to the EOT transaction, at a discount to the others, as he didn’t have the risk that comes with an earn-out. The other three then sold their shares to the EOT and carried on working in the firm. We had to get HMRC clearance for both parts of the transaction. All four were pleased with the outcome.
How will the business now develop?
There is a pathway for the next tier of senior managers to step into leadership roles, as the executive team slowly reduce their responsibilities. It will take roughly five years to pay down the earn-out, allowing for that transition. I have joined the trust board as the independent trustee and will remain for about a year. My knowledge of employee ownership has proved particularly useful immediately post-transaction. I will help them make sure that the next generation of leaders understands how to approach running an EOT-owned business and make a success of it.
Who were the advisers?
We were the sole adviser, providing financial and legal advice. We have an ex-Addleshaw Goddard in-house lawyer, Andrew Carpenter. We’ve done 40 sales to EOTs and provided in-house legal advice on around 30 of those.
What were the challenges?
The four shareholders had a very democratic approach to decision-making, which meant a long time discussing what the deal meant for each individual. We also spent time with some senior managers, talking through what the deal meant for them long term. It was only when we had full stakeholder support that the transaction progressed.
Were any lessons learned for the future?
One main benefit of an EOT transaction is that on day one there is a very clear roadmap for the company – particularly that it will remain an independent business. This deal helped polish our stakeholder management skills regarding making that point clear.
The CV
Tom Lethaby is business development director at RVE Corporate Finance, a Buckinghamshire-based specialist adviser on EOT transactions. He is CIMA qualified and holds the ICAEW/CISI corporate finance qualification. Prior to joining RVE in 2021, he spent 17 years in wine export/import. He is on the Employee Ownership Association membership council.
