Carole Leslie

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  1. 6 Steps to a successful employee buyout

    August 4, 2014

    1. Be clear about your own needs and intentions
    As an exit route, the sale to employees is the option that gives the vendor the greatest control over the process. You can set the timescales, choose the structure, decide on how much you want and even influence how the company will look once you have said goodbye.
    It can be very worthwhile to talk through your ideas with someone who understands the process. Talk to former owners and companies who have already taken this route. The more research in the beginning, the smoother the transition later.

    2. Choose the right adviser
    Although research proves that employee ownership is a very successful business model, it is not yet a mainstream ownership structure. It’s therefore important that you select an adviser who understands what you want to achieve, and knows how to help you get there. You don’t want to be paying for someone learning how to do it, or someone who doesn’t know how to get the best possible outcome

    3. Select the structure that’s right for you
    There is no “one size fits all” employee ownership structure, and the best one for your company is one that fits with your organisation, your people and your culture. For example, in the UK’s largest employee owned company, John Lewis Partnership, employees do not have an individual shareholding. The shares are held in trust on behalf of the employees. This is a popular model. In other companies, employees can buy and sell shares and build up value in the company in which they work. There are tax effective ways to facilitate employee share ownership.
    It may be that a family business may want to retain a small shareholding for future generations or the company may want to make a small number of shares available for external investors. It’s important to invest time in considering all options, and the potential consequences of these options. Consider this early in the process in order that you reach the best ownership model for you.

    4. Design the appropriate funding package
    The owner who has created and built a successful business should be able to benefit from a fair price when it comes time to sell that business. The funding of the employee buy-out must be structured in order to achieve the fair price, yet not place an undue burden of debt on the company and its employees. It might be that a “package of funding” is the best solution; using company cash reserves, employee investment and external and vendor financing. If possible, it makes sense to do this in the most tax effective way.

    5. Manage the change
    Despite what some lawyers might like you to believe, a business transfer is not just a legal process. Yes, it is of critical importance to take appropriate advice and to have the correct documentation in place but as an organisational change this requires a broader approach. The employees of the company will become the owners, and to fulfil this role they must have a proper understanding of the rights and responsibilities involved in ownership. Pulling together the different strands; funding, structuring, share transfer, communication, stakeholder management as well as keeping the day job going is a tall order.

    6. Communicate, communicate, communicate!
    Communication is the lynchpin of the process. The key to success in employee owned companies is when the employees think, feel and act like owners. By involving your employees in shaping the company for the future, gaining a real understanding of the rights and responsibilities of ownership, you can ensure that the employees will be as committed to business success as true owners.
    Customers are positive about dealing with employee owned businesses and companies owned by their employees fnd it easier to recruit and retain high calibre staff. Leverage your employee ownership to raise awareness outside of the company
    The move to employee ownership presents a tremendous PR opportunity. Make sure your PR people understand what it means,

    Of course, communication never stops within the employee-owned business. Many companies describe employee ownership as a journey. You will find the employee ownership community to be one where people share knowledge and experience generously. There is a genuine commitment to ethical working and best practice; driving successful, sustainable business which benefits the individual, the company, the community and the economy.

  2. It’s not all about the numbers!

    June 10, 2014

    “Exit is rarely a purely economic decision for a business.” – Michael Kelly, Senior Associate, Macroberts

    I was invited to attend “The Deal”; a workshop looking at business transfer, facilitated by leading law firm Macroberts. Having worked on many transactions, all of them employee buy-outs, I was intrigued to find out how more conventional exits differ. Attendees were a mix of owners of owner managed firms, and business advisers. We were split into two groups and given a transaction to work on. One group was to look at this from the perspective of vendor, and my group was to take the role of purchaser. David Wylie, Corporate Partner, led the workshop by setting the scene. We were given some outline facts, but not much in the way of financial information. This made the accountants in my team a tad nervous: “We need to see the numbers”! Michael Kelly, Senior Associate, who facilitated our group, was clear. “You have to use the information you have. Exit is rarely a purely economic decision for a business”.

    It was a family business. Sound, profitable, good prospects. One of my group identified a winning tactic. “Let’s buy out their major supplier – that gives us some leverage.” This move almost broke the deal. The vendor team perceived this to be an underhand manoeuvre that would lead to breakdown in trust. Indeed, one of their number wanted to walk away then.

    Some of those present felt this was taking “role play” too far, but in my experience, this can be exactly what happens. The vendor has to feel comfortable with the sale. This is particularly salient in a privately held business, where often a chunk of life and legacy is being sold, not just what appears on the balance sheet.

    What did I learn? Lots! I didn’t know that patents were geographic (thanks, Euan Duncan) and was very interested to hear from employment specialist John McMillan how employment issues differ with an asset sale rather than a share sale. Ainsley McLaren, tax specialist, was on hand to guide us through the minefield of taxation issues.

    The most salient learning point from the workshop reinforced what I’d found in deals I’d worked on; the key factor in a business transfer is the people. Yes, price is important. The vendor has to be happy they are getting their earned reward for starting or building up the business. However, there are other factors at play. What are the aspirations of the current management team? What do the shareholders really want to achieve from the deal? Who makes the business successful? What’s the outlook in that sector? What are the real- tangible and intangible – assets in the business? It’s about more than the numbers.

    Macroberts have a winning formula in this workshop. You learn so much from working through the theoretical case study. You get the opportunity to explore issues that might not be immediately obvious, and experts guide you on the potential consequences of any actions and decisions. Selling a business can be a complex transaction whatever the circumstances. The workshops run throughout the year and if any business owner is considering a sale over the next few years, I’d certainly recommend attending. And great to see selling to employees is an option considered!

    For information on Macroberts Deal workshops click here

  3. Corporate social responsibility – or a real sustainable social business?

    December 10, 2011

    Someone pointed out a painful truth to me today: the fashion for corporate social responsibility is often a marketing front, masking the true objectives and operations of the business. And yes, when I reflect, usually the responsibility for CSR within a company sits in the marketing department. What a depressing thought.

    That someone was Mark Adams, leader of Vitsœ, an exciting and innovative company which takes the whole matter of sustainable business very seriously indeed. As Mark spoke so passionately about the company’s products – they produce shelving systems – I wondered if he was a designer or an engineer. The attention to detail is incredible. The smallest components are painstakingly designed and custom-manufactured. Customers are provided with everything they need for a smooth installation in an attractive recycled cotton bag. The integrated IT system supports the company’s global operations. The units grace the pages of the glossiest magazines. It’s clever, and it looks good.

    Mark is neither an engineer nor a designer. He told me he was a zoologist. And it all fell into place. Mark views business as you would an ecosystem. No waste, just find another use. Don’t recycle, reuse. Get it right, and it will last. Evolve. Every stage of the business process has been considered to ensure that it is sustainable, customer focused and efficient.

    And Vitsœ mean it. It’s not empty words. Rather than using polystyrene, starch pellets protect the products in transit. A notice is pasted on the package to let customers know they can compost the pellets. The cardboard box packaging has been designed to minimise waste as far as possible. Even in the staff canteen, bottled water is banned and filtered water from the tap is kept cool in glass bottles in the fridge. A jar sits on the worktop with milk bottle tops ready for recycling. The array of bikes lined up in the workshop demonstrate the company’s favoured mode of transport. Even the workforce are sustainable. Two of the employees are returning to their homelands, Scandinavia and New Zealand, and Mark has given them the option of continuing to be part of the Vitsœ team. The company has locations in New York, Tokyo, Munich, Los Angeles, Melbourne and Sydney.

    Mark is now looking at how this sustainability can be anchored into the business for the long term. How can his vision, and the company’s very special ethos, be protected for the future? An admirer of John Lewis Partnership, Mark wanted to explore whether employee ownership might offer a potential solution to this. John Lewis Partnership is not owned by individual or corporate shareholders. It is owned by an Employee Benefits Trust, and the 80000 employees of the company are the beneficiaries of that trust. This ensures the company is protected from future sale – as far as possible – and free from external influences. A similar model would allow Vitsœ to continue to do business their way, and not be forced to compromise their ethics for short term gains.

    Sustainable business is about more than getting the product out the door and putting a marketing gloss on it. It has to be real. It would be an injustice to say Vitsœ produce shelving. No, Vitsœ produce the best shelving in the best way. Like the natural world used as the model, it’s the honest and ethical way to do business.