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The growing popularity of employee ownership
20th February 2018
Bruce Farquhar, Chair of Anderson Strathern
Business succession is a topic many business owners often push to the bottom of their agenda. Running the company gets in the way, or sometimes, it’s because the owner just doesn’t want to sell to a trade buyer. For many, the idea of a competitor’s name over the door, or watch the company relocate away from its roots is just not a sight they want to see.
However, recently more and more companies are taking advantage of a new tax effective option when it comes to addressing business succession. Rather than finding an external buyer, they sell the company to the employees. The business owner gets an acceptable price for their business, they can make their own decisions about how long they remain involved and in what capacity, and the business is in the hands of the people who know it best, the employees. Employee ownership has been proven to be effective employee owned firms outperform their conventionally structured peers on just about every business metric.
Mediascape is an audiovisual provider with offices in Glasgow and Edinburgh. The owners, husband and wife team Angus and Shona Knight, considered a sale but were very aware that any potential buyers were likely to be based outside of Scotland. They had read about employee ownership in a trade magazine and decided it was an option worth exploring. Once the decision was made, the move was announced to staff where it was very well-received and the transaction completed on 25th January this year. Angus and Shona intend to remain with the company for a few years to facilitate a smooth transition but do intend to reduce their working time.
Ruth Smyth, former owner of Paramount Care, also opted for a sale to employees as she began to plan her retirement. The care sector is dominated by large national companies and Ruth didn’t see any synergy between that type of organisation and the local, personalised care that Paramount has delivered for more than 20 years. The company is now almost a year in to employee ownership and it’s working superbly with both staff and clients reassured that Paramount is in a stable position.
Here at Anderson Strathern, we have worked on a number of these transactions, and are currently working with many companies mid transition. These deals are relatively straightforward, in comparison to trade sale discussions, which can become adversarial as each party tries to secure the best deal for themselves. In an employee ownership transaction, the mood is much more collaborative as both parties are aligned in achieving the best outcome.
Employee ownership is a business model that attracts cross party support and is upheld by both the Westminster and Holyrood governments. Shareholders who sell a controlling interest to an Employee Ownership Trust can benefit from Capital Gains Tax relief subject to satisfying certain conditions. Both Scottish Enterprise and Highlands & Islands Enterprise offer support to companies interested in exploring the model.
The importance of timely succession planning can’t be underestimated and it’s a conversation we are happy to help with. Employee ownership is just one option and will not fit with every company, but for some, it might just be the solution they are looking for.