Carole Leslie

  • RSS
    Subscribe to the RSS feed
  1. 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

  2. “By making the change, we preserve the past”

    August 16, 2012

    Change is good – but some things are worth keeping.  Many business owners decide to move their companies into employee ownership because they want some things to stay the same. They may want to ensure the business stays in the same location, providing current and future jobs in the community.  There may be a long-standing, loyal customer base who expect certain standards of service, which competitors may not be in a position to deliver. Some owners recognise the contribution employees have made to the business, and want to secure their future.  And some companies just have a unique way of being successful, and employee ownership provides a means of continuing to operate in that way.

    I had the privilege of spending time yesterday with one such company.  Galloway & MacLeod has manufactured and supplied animal feed to the agricultural sector since 1874.  It’s a prosperous company, and a significant employer in the village of Stonehouse, South Lanarkshire. It is a highly specialised business; the composition of animal feed is painstakingly complex and the tracking process is rigorous. Every employee I met was cheerful, knowledgeable and appeared committed to their company. Yet, when asked about the move to employee ownership, the response was often, “Nothing has really changed.”

    Many organisational development consultants would shake their heads at such a response. Yet to me, this was a ringing endorsement that employee ownership was the right move for this company. It is evident that the company’s commitment to excellence hadn’t changed. Innovation is a priority, as is sustainable development.  Customers are central to the business and employees are actively encouraged to maintain their expertise.  As well as being a traditional, old fashioned business, Galloway & MacLeod is right up there when it comes to progress, technology and continual improvement of their product and service for customers.

    What has changed is that the issue of succession is gone, the threat of a trade sale and potential relocation has been removed, and the employees now have a real stake in their company, with more control over their destiny.

    With all the talk about employee ownership being a complex, convoluted and a lengthy process, it was great to hear the company’s Chairman, Ralph MacLeod, say that it was an easy transition (which was supported by Co-operative Development Scotland).  He doesn’t see any downside.  Perhaps as the seller, he could have got a few more pounds for the business had he sold out to one of the large conglomerates, but as he says “It’s about optimising the value, not maximising the financial value”.

    Employee ownership doesn’t have to be difficult, and is often the best outcome for business owners who want to secure the long term prosperity of their business.

     

  3. The myth of shareholder value

    April 15, 2012

    Why do businesses exist?  According to the business schools, the purpose of the business is to maximise shareholder value and I don’t disagree with that. What I do disagree with is that this ‘value” is interpreted purely in financial terms.  What do shareholders value?

    In the world of employee ownership, shareholders value many elements.  it is important that the business runs well; serving customers, engaging employees and making a profit.  Indeed, employee owned businesses tend to excel at this.  Research carried out by Cass Business School in 2010 found that firms owned by their employees tended to be more resilient, more productive and profitable and more innovative than similar businesses with more conventional ownership models.  So yes, to employee owners, the usual business metrics are important.

    Within these conventional businesses, the measure of success tends to be in the share value. And as we all know, what gets measured, gets attention. If the focus is on the quarterly share value, then this drives business decisions.  Will the investment deliver a return?  How quickly will we see that return?  When will we see a financial benefit from that training?  Things are looking tough, what’s our biggest cost? Cut it. Sadly, the response to this last question is often staff losses.

    However, what makes employee owned businesses more successful lies in the value placed on the long term sustainability of the business.   Employees are driven to ensure the business lasts and maintains employment.  Access to information means that employee owners understand the business better, and know what effects the bottom line.  Employee owners know how precious customers are, and why the products and services must be better than the competitors. Leaders of these businesses recognise the importance of the workforce, and strive to ensure a happy, productive working environment .  The robust and transparent governance that is often a feature of employee owned companies means that leaders are sharper, employee relations are healthier, and we don’t see the disproportionate executive pay levels seen in external shareholder business models.

    The value of a business does not merely lie in its balance sheet.  Businesses have a social purpose; providing rewarding employment, contributing to the community, creating long term wealth for society.  The external shareholder model and its focus on short term financial value is not good for the health of our economy. We need to see more plurality of business models, and the ownership dispersed to those who have a real interest in sustainable success of enterprises.