EOT Deferred Consideration Insurance (DCI)

protecting Vendor value

de-risking the EOT

helping the deal happen

FAB Assurance is a proud Supporter Member of the Employee Ownership Association

"If I die, that should be the only bad thing that happens"

A. Vendor

EOT

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’.

Risk

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

Insurance

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…