The majority of employees are funded by debt
Consider two facts:
A significant part of the value of many businesses is the real property from which they operate, being factory, warehouse or office premises.
The vast majority of management or employee buy-outs are funded by debt, as employees traditionally do not have large amounts of spare capital.
Obviously, purchasing real property with the business can be a problem for an MBO team, so if you plan for your business to be bought by your management or employees you need to consider whether it is feasible to include in the sale the real property from which the business operates. On the one hand, including the property will push up the sale price but, on the other, excluding it will reduce the hard assets available as security to support the borrowings.
If the company that owns the business also owns the property (as apposed to it being owned by another company or the owner privately) a sale of shares will automatically mean the property will be included in the sale. If you own the property in your own name, you can exclude it from the sale and rent it to the new business. There are also capital tax advantages in owning the property as an individual, rather than through a company.
Once you have decided that an MBO or an EPO is the optimum exit option you should review the ownership of any business properties and allow yourself time to adjust their ownership if necessary, subject to expert advice.
