Employee ownership – what’ s in it for the vendor?
Speaking recently with a business owner currently exploring exit options reminded me of how important, and how difficult, that decision can be. It’s a small business, but a significant employer in its local town. Many of the staff had been with the family business for many years. There had been several approaches to buy but all would mean the business would relocate and local employment would end. “I live in that town. How can I look people in the eyes if I’ve put them out of work?” he said. It’s a common dilemma – succession doesn’t just affect the owner, the decision can be far-reaching.
For some business owners, it is about getting the best price and that’s fine. Many entrepreneurs put their all into a business, creating jobs and opportunities and sell. They then start something else and the cycle starts again. For many owners, the value of the business isn’t just financial. You want more from a sale than cash in the bank.
As a business owner, you want to know that the business you created will be cherished, that the relationships you have built over the years maintained, and that the company will grow increasingly stronger to meet the challenges ahead. Who better to do that than the people who know the business best; the employees?
Selling to employees is becoming an increasingly popular succession option for business owners looking for an exit route. Research proves that employee owned businesses produce more sustainable performance, demonstrate more innovation and have happier employees and customers than traditionally structured businesses.
Entrepreneurs and leaders in family businesses often find the thought of a trade sale to the competitor unpalatable for a number of reasons: perhaps the business practices don’t meet their high standards, or there is concern that the incoming owner might not treat the customers and employees well. It may be that the the owner wants to keep the business rooted in the local community. Often a trade sale leads to asset stripping and/or relocation. It might just be a desire to retain the “name over the door” recognising the individual/family’s contribution to creating that successful firm.
A management buy-out can put undue pressure on a management team, financially as well as in terms of stress, and of course, each manager will be looking for an exit themselves at some point. Indeed, the MBO can be seen as delaying the succession issue rather than solving it.
The beauty of an employee buy-out is that the seller can dictate the pace of change, and manage their own exit at a pace and level that suits them. Many remain involved in an executive or non executive role, guiding the company into a new future.
Employee ownership helps ensure that the end product meets not only the needs of the vendor in terms of the realisation of value, but also the needs of the business to enjoy a successful, sustainable future and the needs of the employees in sustaining the skills and wealth in the local community.