The EOT regime, introduced by the Finance Act 2014, has become an increasingly popular succession route for owner-managed businesses.

Done well, it offers selling shareholders a tax-efficient exit and gives employees a long-term collective stake in the business they help to run. Done poorly, it exposes the trustees, the company, and the selling shareholders to material risk.

Trustees of an EOT owe a fiduciary duty to the employee beneficiaries. Central to that duty is satisfying themselves that the trust is not paying more than market value for the shares acquired. An overpayment would sit uncomfortably with that duty, and it would also jeopardise the Capital Gains Tax (CGT) relief that underpins the commercial case for the transaction. Equally, the trustees must be confident that the price reflects a balanced, evidence-based view of the business rather than one weighted in favour of the selling shareholders.

For these reasons, the trustees need a valuation prepared by advisers who have no commercial interest in the transaction and who report independently to the trustees. In the Parsons Bakery transaction, the trustees engaged us to provide an independent valuation to support their assessment of the proposed acquisition price.

The engagement

Parsons Bakery is a privately owned artisanal bakery with roots reaching back to the 1920s.

The Trustees of the newly formed EOT, acting on behalf of the 400-plus staff members who were to collectively become majority owners of the business, engaged us to provide an independent equity valuation in support of the proposed acquisition of the entire issued share capital of the company.

Several features of the business made the assignment interesting. For example, reported earnings in recent years had been affected by a number of exceptional items, including:

• The UK energy crisis of 2022 and 2023 (which impacted the business materially),

• Legacy effects arising from the Coronavirus Job Retention Scheme

• Various commercial arrangements in place that did not reflect the post-transaction operating model.

Each of these factors required careful consideration when forming a view on value.

Our approach

We adopted an approach known as an “enterprise value to EBITDA multiple” approach. This is a common methodology that is typically used for such businesses given the nature of the business, its relative maturity, and the availability of reliable benchmark data.

Three strands of work supported the analysis:

1. First, we built a robust view of what a maintainable, ‘normalised’ level of EBITDA should be, by making various adjustments such as to energy costs.

2. Second, we benchmarked the company against comparable data from the UK and international bakery and food-on-the-go sectors, from both listed company market data and recent precedent transactions in the same space.

3. The resulting value was then cross-checked against secondary approaches, in order to sense-check our findings.

The valuation was presented to the Trustees in a detailed report, setting out the methodology, the supporting evidence, and the key sensitivities. Throughout the engagement, our role was to act as the Trustees' independent adviser, giving them the analysis they needed to discharge their duties to the employee beneficiaries with confidence.

The outcome

Following our report, the Trustees were able to make an informed decision on the acquisition price, supported by a clear rationale for the valuation reached. The successful sale was subsequently covered in the trade press, including BBC News.

Ownership of Parsons Bakery has now transferred to the people who have built and sustained the business in recent years, providing continuity of leadership, security for the workforce, and a tax-efficient exit for the founding shareholders.

Why it matters

The Parsons Bakery engagement is a good illustration of the role an independent valuation plays in an EOT transaction. It supports the trustees in discharging their fiduciary duties, it provides a defensible position should HMRC review the transaction at a later date, and it gives all parties confidence that the deal has been concluded on properly evidenced commercial terms.

Our Valuations specialists work with trustees, shareholders, and management teams across the UK on EOT transactions, employee share schemes, succession planning, and other transaction-driven valuations. The tax positions referenced in any individual transaction should be confirmed against current HMRC guidance and the legislation in force at the time

Speak to our Valuations experts

If you are considering an EOT as part of your succession planning, or you are acting as a prospective trustee for an EOT transaction, please speak to our Valuations experts about how an independent valuation can support a fair, evidence-based and defensible process.