The founder’s journey – what our MD Jeremy’s learned
What motivates someone to launch their own business? For our founder/MD Jeremy Gadd, it was a ‘perfect storm’ in 2013 that gifted him the time to reflect, explore and spot a gap in the market he sensed he could fill.
Combined with more than a touch of entrepreneurial spirit, of course – well, no-one said running your own business was easy!
Jeremy with JGA’s Corrine Thomas
‘I knew it would be hard work and that didn’t bother me,’ Jeremy explains. ‘But how do you find the energy to keep going?
‘There has to be some element of the ‘evangelical’ in the founder/owner of a business. Not everyone wants to be at the top. The buck stops with you.’
Understanding the challenge of change
‘Transitioning to EO is like any major project – you have to prepare for the impact that change will have on you and your organisation’
Jeremy Gadd, JGA’s Founder and MD
Jeremy launched JGA in January 2014 and says: ‘I still get a buzz out of what I do. I’m involved in interesting and rewarding work most days.
‘Exciting, challenging, exhilarating – the last 10 years have been all three.’
The ‘gap’ he’d spotted in 2013 was that founder/owners were transitioning their companies to employee ownership (EO) but finding down the line that EO wasn’t ‘working’ as they’d assumed – that some people ‘didn’t get it’.
‘I could see clients were well served with the legal/tax aspects, but they weren’t understanding that transitioning your business to EO is a massive organisational and governance change as well,’ he explains.
‘It’s like any major project – you have to prepare for the impact that change will have on you and your organisation. Understandably, this wasn’t the main focus. We set about building JGA to meet this need.’
The unique nature of the founder’s role
Jeremy with business founders Chris Barrington Brown (Cunning Running), Neal Criscuolo (NC2) and David Sproxton (Aardman)
In the decade since, JGA has supported more than 100 clients at all stages of their EO journey, from exploring succession planning options to transition and beyond.
Through it all, Jeremy’s interest in what motivates someone to launch their own business – and how, in time, that shapes their exit strategy – has grown.
‘I still love meeting founder/owners,’ he confirms. ‘I take care to remain objective, but I can identify with their concerns and aspirations. I bring my experience and understanding of a unique role.
‘I understand why succession is something many don’t want to think about. So much of our work is about our identity, and that’s not necessarily appreciated by the exiting founder/owner.
‘Considering how they’ll spend their time after they let go of their business, involving their loved ones in the decision, is important to the employee ownership transition’s success.’
Planning his own succession
So what about Jeremy’s own succession planning at JGA?
He’d been exploring options for quite some time. However, being involved in interviewing 20-plus founder/owners and their leadership successors for ‘The Road to Succession’ research project clarified his thoughts.
JGA co-delivered ‘The Road to Succession’ with Telos Partners for the Employee Ownership Association last year.
‘It confirmed the time and effort it takes to find your successor, and that highlighted my own process as a founder/owner,’ he explains.
‘We’d been collaborating with Telos Partners for a while, we overlapped and shared similar values. Merging our two businesses just made sense – it was a no brainer.
‘I’m not retiring,’ he adds. ‘Quite the opposite! This is about growing JGA and Telos together. It’s a very exciting time.’
What 5 key things has Jeremy learned?
So what has Jeremy learned as a founder/owner that’s useful for our clients today?
Here’s what he says.
1. Trust your gut…
‘… Especially pre-transition if your succession planning includes EO. I’m kind of intuitive about the big stuff.
‘The detail will help you deliver but do the answers to the big questions come easily? If so, it’s probably the right thing to do.’
2. The best strategies fit on a single page
‘I came out of a company where a lot of time was spent creating/supporting business strategy that ended up in the second drawer down.
‘Yet at its heart a business is a very simple entity: you have a product or service you must sell for more than it costs to produce or deliver.
‘Revisit your strategy to clarify or update it, but keep it to a single page.’
3. Change evolves in different ways
‘One thing I’ve learned from employee ownership is that good change comes as a result of people reflecting, evolving and implementing their good ideas.
‘If you’re the one implementing the change, be mindful of how long it can take others to come with you.’
4. Communicate clearly – and allow enough time
‘People absorb information in different ways and at different speeds. I’ve learned to recognise that and help others recognise it too.
‘People will challenge you all the time. They’re not being difficult – they want to understand.
‘Work with it: communication should be encouraged, not dismissed. Communicate, communicate, communicate.’
5. Recognise the difference between ‘need’ and ‘want’
‘One of my biggest learns from building JGA – you can see ‘need’ but ‘want’ is the recognition that someone is able and willing to invest in your service or product.
‘Communicate in a way that enables others to understand the value you’ll add.’
Want to know more about our transition, people and governance support? Get in touch for a friendly, no-obligation chat.
Suite TV announces move to employee ownership
JGA supports Suite TV in their transition to EO
We are delighted to share the news that Suite TV have become employee-owned. The award-winning television post production company responsible for providing editing facilities to the nation’s favourite comedy programmes became the latest business to join the employee ownership community.
This week’s announcement reveals that 100% of shares have been transferred into an Employee Ownership Trust (EOT) on behalf of all their employees.
JGA’s MD and Founder Jeremy Gadd and our Associate Corrine Thomas have supported the founders’ ambitions to transition the organisation to an Employee Ownership Trust (EOT). From the initial contact made during a networking session earlier this year, the last five months have seen a great deal of planning and preparation to which Jeremy and Corrine have been able to add clarity and guidance throughout.
Suite TV provides editing facilities for a number of well-known national comedy programmes, including the popular ‘Have I Got News For You’ (with Ian Hislop and Paul Merton), critically-acclaimed ‘Afterlife’ (penned by the irrepressible Ricky Gervais) and ‘Not Going Out’ (the second longest running British sit-com). The team were also involved in editing the recent groundbreaking documentary drama ‘Partygate’.
At a staff meeting of the 40 employees this week, Julian Aston, Suite TV’s Chairman and Founder, announced this monumental news at the company’s headquarters.
Julian said: ‘The decision of the founder shareholders to sell their shares to the newly-formed Suite Employees TV Trust was the very best way to ensure the future of the business, and that by passing the ownership to the staff, the long-term future of the business was secured.’
Shelley Fox, Founder shareholder and Managing Director, said: ‘We looked for years to find the right succession strategy and employee ownership will, I hope, mean that we pass the baton on to our brilliant young and talented staff.’
The transition to employee ownership has taken more than three years, and Suite TV was assisted in this journey by William Franklin of Pett Franklin, Jane Jeavon of Legal Clarity as well as Jeremy Gadd of J Gadd Associates. JGA have been retained by Suite TV for a further nine months to support and guide the transition journey. Suite TV are full members of the Employee Ownership Association.
For any further information on Suite TV, please contact Julian@suitetv.com
Succession planning and EO – how to fast-track your understanding
Succession planning. Two words, so many options – depending on the size and set-up of the company you own.
So if you’re the founder/owner of an SME or family business who’s considering employee ownership (EO) for your exit strategy, what do you need to know?
And how can you gain the practical knowledge to make an informed decision in a way that is time- and cost-effective, from people with first-hand experience of what it means to be EO?
Accelerating company owners’ understanding of EO
It was these questions that prompted JGA to develop the new fast-track EO Accelerator programme in partnership with the Employee Ownership Association, working alongside experienced legal and financial advisors Triodos and TLT.
‘With the challenges company owners face today, having a programme which accelerates their understanding of whether EO is the right path and – if it is – how to successfully transition their business couldn’t feel more timely,’ says our MD Jeremy Gadd.
He and Associate Garry Davis will be leading the first EO Accelerator. So what is the EO Accelerator and why is it different?
Jeremy Gadd
Creating an opportunity to network with others
The EO Accelerator is an immersive EO learning programme that fast-tracks a business owner’s exploration of EO as a succession option, ultimately accelerating their decision-making.
Its focused content and design offer particularly good value for founder/owners by providing a confidential space for insightful discussion, alongside opportunities to reflect and apply learning.
A key strength is the chance it brings to network with expert advisors and former founder/owners who have already transitioned their companies to EO.
‘We want to ensure that each delegate has the opportunity not just to understand the EO transition process and its impact on themselves as leaders and their business – but that they are also able to build a supportive network which will continue to add value beyond the two days,’ Jeremy explains.
‘I’m looking forward to seeing the culmination of the work that so many have invested in making the EO Accelerator a rich, immersive and inclusive experience. Not forgetting that after more than a few virtual sessions, it will be great to meet up and deliver this programme face to face!’
Supporting informed succession planning
Garry agrees.
Having played a pivotal role in the programme’s design, he’s looking forward to engaging, informing and inspiring founder/owners who are considering EO and are presently ‘looking up at what can seem a pretty daunting route into the unknown’.
As he explains: ‘It’s exciting to be involved in developing and facilitating a programme that gives a much-needed holistic view of EO, what it is and what it isn’t.
‘The issues around succession, what’s the best next step for your business and how you equip and engage those who work in it, can feel immense – and, of course, they won’t go away or become any less important,’ he adds. ‘In this context, taking two days to explore and reflect on the wide range of topics covered in the EO Accelerator seems like a wise investment indeed.’
Philippa Meaden
Sharing first-hand experience of EO
Lisa Fryer, JGA’s Operations Manager and Associate, is equally excited that booking for the first EO Accelerator is now open.
‘With this programme, we're pulling on JGA’s experience of supporting more than 90 clients at different stages of their EO journey, not just transition,’ she reveals. ‘So although it is focused on preparing to become EO, we’re able to reference and anticipate the issues that organisations might face further down the line.
‘This gives delegates a better chance of getting things in place with communications and employee engagement from an early stage. JGA’s position of not providing specialist regulated advice services (legal and financial) enables us to bring a fresh perspective to the whole transition journey.’
Lisa also highlights the benefits of working in partnership with the EOA to deliver the EO Accelerator, including access to a wide range of the EOA’s resources. ‘That access helps to cut through to key considerations for those seriously exploring the EO model and transition planning,’ she explains.
A fast-track EO learning programme delivered with the EOA
JGA’s Lead Associate Philippa Meaden is looking forward to seeing many months of labour come together at the first EO Accelerator.
She has been involved with evolving the programme’s content and guiding collaboration since May 2022.
‘It’s been an interesting evolution of a project,’ she confirms. ‘I love working with founder/owners at the early stage of the transition process so to be able to pick this up, work with fabulous stakeholders and see it all come together has been very exciting.
‘When you’re looking at the future of a business you’ve grown there’s always a personal attachment – understanding how to leave a legacy is a challenge. There’s no one size fits all and the EO Accelerator gives founder/owners the opportunity to be fully immersed in learning about EO to support their thinking and provide a better grounding for any decision they then take.
‘Recognising where JGA’s own strengths lie, we’ve developed a programme that enables other expert advisors to input and gives delegates a level of service not offered anywhere else.’
‘With the EO Accelerator programme, we’re pulling on JGA’s experience of supporting more than 90 clients at different stages of their EO journey, not just transition… so we’re able to anticipate the issues that organisations might face down the line’
Lisa Fryer, JGA Operations Manager and Associate
Garry Davis
Building clarity and confidence for the next step
But the last word goes to Garry.
‘Having worked with a wide range of businesses, owners, founders and leaders over the years, we know there isn’t a ‘one size fits all’ version of EO,’ he concludes, ‘and the EO Accelerator programme reflects that.
‘In addition to hearing from experienced practitioners there needs to be the space to discuss, reflect and apply to our own circumstances, challenges and opportunities. We want attendees to leave the EO Accelerator with a greater sense of confidence about their next steps.’
From family-owned business to EO – one company’s story
‘Our employees are the heartbeat of our company, both past and present, and to be able to transition in the right way was really important to us all’ Sarah Pym-Eaton, Finance Director and family member, Pym & Wildsmith
Family businesses – valued as the bedrock of their community, many have been hit hard by this turbulent year. Yet today more than 5m of them are still providing vital employment for 14m people across the UK.
So what happens to succession planning when the next generation wants something different – and a trade sale or MBO just doesn’t feel right? Transitioning to EO is one option for a family business that can safeguard the founders’ legacy, while freeing the company to shape its own path.
Pym & Wildsmith is a family business that became EO last summer so, to mark the IFB’s Family Business Week 2022, we asked Financial Director Sarah Pym-Eaton and MD Craig Taylor to share their experience for others considering the same.
Showing resilience in difficult times
Pym & Wildsmith’s transition didn’t follow the ‘usual’ path. On the eve of the original planned handover, a serious fire damaged the specialist metal finishers’ factory. Although nobody was hurt, the fire caused major issues for the Uttoxeter company and delayed the EO transition by 10 months.
However, the fact that Sarah, brother Ian (Technical Director) and their parents Wendy (Finance and Administration Officer) and Steve (now retired) had already invested such care in their preparations stood them, and their business, in good stead.
‘It’s not until you experience adversity together that you see how resilient you are,’ Sarah recalls. ‘I couldn’t have been prouder of how the team, led by Craig, worked to get us through.’
Exploring EO as a succession plan
So where did Pym & Wildsmith’s EO journey begin? ‘As a family, we’d been thinking about succession planning for several years, but nothing fitted until I discovered EO,’ Sarah reveals.
Curious to learn more, she did her ‘homework’ – joining the Employee Ownership Association, attending virtual networking sessions and connecting with other EO businesses to hear their stories.
Six months later the decision was made.
‘We could see EO was the best option for us personally, our company legacy and for our extended ‘family’ of Pym & Wildsmith workers,’ says Sarah. ‘Our employees are the heartbeat of our company, both past and present, and to be able to transition in the right way was really important to us all.’
Shaping the transition you want
With this in mind, the family made a point of engaging trusted advisors to help shape the process – RVE for the legal/financial transaction and JGA to support the cultural transition and employee owner engagement.
‘We’d learned from existing EO businesses that one of the things they’d do differently was to focus on the cultural side earlier, so they could unlock EO’s benefits sooner,’ says Sarah. ‘So we engaged JGA to help us to shape our transition and bring different people into that journey at different times.
‘It started with the Founders’ Workshop and creating our Founders’ Wishes document, followed by involving Craig, the SLT, our employee groups and finally our employees.
‘We invested a lot of thought and care because we wanted to get it as right as we could without constraining the team moving forward. Lisa Fryer’s support has been invaluable, both then and now.’
A chance to be a catalyst for change
As then Operations Manager, Craig was the first leader to be brought in on the family’s plans. He became MD in July this year.
‘To be offered a stake as an employee owner in a company as longstanding as Pym & Wildsmith felt like a real investment in me as an individual,’ he recalls. ‘It was an exciting opportunity to be a catalyst and drive the change.’
It was also, he agrees, a challenge – especially ‘the journey of bringing the rest of the team up to speed’ on EO before the transaction took place. ‘Having Lisa’s support to break down barriers and bust myths was invaluable. The fact we went so far to engage our teams beforehand allowed us to tailor what’s right for the founders and right for me as MD and the business.’
His current focus as MD is, he explains, strategy, values and vision. ‘EO is about people having a say, so our priority now is to define and differentiate who we are as an EO business: we didn’t want to present a finished article before we transitioned.
‘With JGA’s help, we’re supporting and educating our teams to join us on the journey. This is a monumental change and a challenge, especially in the current economic climate, but we have a good strong team to deliver our ambitions and bring our EO to life.’
What should you do next?
And bringing EO to life is integral to unlocking EO’s benefits. So what should you do next?
Here, Sarah and Craig share 5 practical tips for family businesses exploring EO:
Do your research. Joining the EOA will give you the best start thanks to its wide range of information, support and resources. ‘The EOA were very kind in connecting me with others,’ says Sarah, while Craig loved his time at this autumn’s EOA Conference 2022.
Connect with other EO businesses. The EO community has a great network of new and established EO companies happy to share their own experience of EO’s challenges, opportunities and rewards.
Engage trusted EO advisors. Not just for the legal and financial transaction, but to strengthen the cultural, commercial and engagement process too. Pym & Wildsmith was supported by RVE and JGA.
Take time to shape the transition. Letting go as an owner can be daunting, but becoming EO gives you more control of the process and allows the transition to happen in a more structured way. Leading in an EO business involves a different level of responsibility, so make sure you strengthen your board to step up too.
Allow time to embed the change. Every transition is different, but some owners initially stay on – Sarah, Ian and mother Wendy remain part of Pym & Wildsmith. ‘As a family, we wanted to ensure we were still here during this next stage to support everyone to find their feet and give a gradual transfer of knowledge,’ says Sarah. ‘It was another big tick in the box for EO.’
‘With JGA’s help, we’re supporting and educating our teams to join us on the journey. [Transitioning to EO] is a monumental change and a challenge, especially in the current economic climate, but we have a good strong team to deliver our ambitions and bring our EO to life’
Craig Taylor, MD, Pym & Wildsmith
Want to know more about how we can support your family business to transition or unlock the benefits of becoming EO? Get in touch here.
Hybrid Employee Ownership: More than just an Employee Ownership Trust
At JGA, we work alongside a small number of carefully-selected Trusted Partners – chosen for their shared commitment to the clients we serve. For our latest guest blog, we asked Robert Postlethwaite, MD of Postlethwaite Solicitors to explain what hybrid employee ownership involves, and what owners need to consider when exploring this option.
Robert writes:
If you’re thinking about what legal structure to use when moving your company into employee ownership, the simplest approach is to use an employee ownership trust (EOT). The EOT’s trustees own the company but for the benefit of its employees (the beneficiaries), so employee ownership is indirect ie through the trustees. Ownership by an EOT means there are few moving parts: all employees (and new joiners who’ve completed an initial period of employment) automatically enjoy the benefits of ownership, leavers automatically cease to do so.
For many employee-owned companies this works perfectly well, the EOT permanently holding all the shares in the company (or all of them apart from any that the company’s founders have retained). Some, however, choose a different arrangement, where alongside the EOT’s indirect ownership sits a separate direct form of ownership under which all, or some, employees each have their own personal ownership stake.
This is often called a hybrid: a mix of indirect and direct employee ownership. What are the advantages of choosing hybrid, how can it be done, and what are the challenges involved in making it work?
Why choose hybrid?
Most companies choose hybrid because they want their senior leadership team or other key people to have a targeted incentive and reward to grow the business, the business being more heavily reliant them than on other employees. Of course this could be achieved by a special bonus arrangement and often this is the chosen solution.
But some companies wish to go further and create a long term reward arrangement for key people involving personal share ownership. This has two potential financial benefits for participants: it enables them to receive a dividend on their shares if linked to company profit (on top of any general employee profit share) and gives an opportunity to enjoy capital growth, that is the ability to sell their shares at a profit in the future of the company’s performance means it grows in value.
The UK tax regime provides incentives for companies doing this (see further below).
So we sometimes see a hybrid arrangement under which (for example) an EOT will hold a minimum of 80% of a company, with up to 20% allocated to key people.
There is another form of hybrid under which all employees – not just the key ones – are able to hold shares personally alongside the EOT’s majority stake. This is occasionally seen but it not common. A company might do this because it feels some personal share ownership for each employee will make ownership feel more real and make it easier to engage employees as owners.
It is even possible to have hybrid ownership involving both of the above, or hybrid ownership plus some shares retained by founders
How to do it?
For key employees, a good starting point for most companies will be EMI share options. Participants can be selected and will be granted a right (option) to purchase shares at a fixed price (normally their value at that time) from a future date (eg after three years). If the shares’ value grows over that period, they may then take up the right to buy the shares (exercise their option). Participants enjoy a reduced rate of tax on any financial benefit through growth in the value of their shares. Not all companies are eligible to grant EMI share options.
A company looking to create personal share ownership for all its employees might consider doing this though a share incentive plan (SIP), under which employees can be awarded free shares without this being taxed as a benefit, or given full tax relief to buy shares (or both).
What are the pitfalls?
Any hybrid arrangement is going to involve more administration. There will be work to do to create individual share ownership, administration and record keeping, and when participants leave (or simply wish to sell their shares) further work to do to bring their share ownership to an end.
Every participant will (unless they leave relatively soon after acquiring shares and are therefore required simply to forfeit them) eventually wish to turn any growth in the value of their shares into cash. If the company has grown significantly, those shares could potentially be very valuable. It is vital to avoid the arrangement becoming a victim of its own success because the company cannot afford to pay for the shares to be bought back. This can partly be addressed by a mix of advance planning (financial modelling to predict future repurchase values and building a cash reserve) and terms of ownership (for example, employees who are selling are paid in instalments).
Further details are available via this link in this ‘Guide to becoming an employee owned company’
To find out more or if you would like to discuss an approach that would align best with your objectives, get in touch with Robert Postlethwaite, who would be happy to talk in more detail about the different options.
About Postlethwaite
Postlethwaite Solicitors are a team of specialist employee ownership and share scheme lawyers.
With top tier firm and lawyer rankings and over eighteen years of employee ownership and share scheme experience from a wide range of commercial transactions and situations, we are able to stand by your side and ensure you have a solution that is fit for purpose, commercially sound and wherever feasible, tax efficient.
Since 2003 we have assisted hundreds of businesses in setting up employees share schemes and over 70 companies in making the transition to becoming employee owned. We focus on helping our clients find the approach and structure that is right for them and then assist with putting it in place.
‘Welcome to your new company!’ – Pym & Wildsmith celebrates becoming EO
‘Welcome to your new company’: that was MD Craig Taylor’s message to his fellow employee owners as Pym & Wildsmith – one of the Midlands’ leading metal finishing companies – officially celebrated its transition to employee ownership last week.
JGA Associate and Operations Manager Lisa Fryer was delighted to join the team for the party at their Staffordshire factory, arriving with her steel-capped boots following a very different morning commute. She has been providing transition support, including communication and announcement planning, to the family-owned company since early 2021.
‘Pym & Wildsmith’s transition to employee ownership has been a long time in the planning and at times there were questions about whether it was meant to be, but their resilience has been amazing,’ says Lisa. ‘I’m so happy they made it in the end.’
A challenging journey to EO
Resilience is the right word because, while every client’s journey to EO is different, Pym & Wildsmith’s has been particularly challenging after a serious fire destroyed a major part of their Uttoxeter factory last September – on the eve of their original transition date.
Fortunately, nobody was injured but the fire left their main building ‘in tatters’ and the team shaken, precipitating a sudden shift of priorities. Understandably, Pym & Wildsmith’s EO transition was delayed by 10 months.
Revisiting the factory last week for the first time since the fire for the party, Lisa says the celebration was ‘bitter sweet’.
‘Seeing the damage was an ongoing reminder of what Pym & Wildsmith have overcome. I also saw how the team has realised new opportunities, with equipment changes and efficiencies as a result of the fire.’
The fire gutted the main coating and oven shed, standing as a reminder awaiting rebuild
Securing the founders’ wishes
So where did Pym & Wildsmith’s inspiring journey to employee ownership begin?
In a conversation with Lisa and our Managing Director Jeremy Gadd in early 2021, during which Sarah Pym-Eaton – Pym & Wildsmith’s Finance Director and one of four family owners – explained that she had been investigating succession planning for several years, ‘discovered EO’ recently and that it was rapidly becoming the preferred option.
‘That initial conversation gave us a sense of how important it was for Pym & Wildsmith’s owners to make the right choices to secure what was important,’ recalls Lisa. ‘When Jeremy asked Sarah what was keeping her awake at night about the change, her immediate response was ‘the people part’.
‘I knew then that it would be vital to get a clear narrative in place and to support the business to recognise its history, while planning a new course for the future.’
Sarah revealed how the business had navigated turbulent times, with redundancies and talent being drained while managing to maintain key clients’ confidence. ‘Like all businesses, the pandemic and Brexit had presented further challenges, but they had a secure base and a resilient team, and knew the future held more opportunities to bounce back,’ Lisa explains.
The right support at the right time
JGA’s initial support was virtual (due to lockdown) and included a Founders’ Workshop with Steve and Wendy Pym, one half of the original founders’ team, and their children Ian and Sarah, who had joined the leadership team.
The thoughts captured in this session became the basis for Pym & Wildsmith’s Founders’ Wishes and a comprehensive FAQ to support the announcement and wider communications.
These included their heartfelt desire that, having committed their lives to the company, it should continue to provide for their employees’ families for generations to come.
Gradually senior leaders and key Admin team members were brought on board, with preparations carefully managed to meet a target transition date of September 2021.
‘That initial conversation gave us a sense of how important it was for Pym & Wildsmith’s owners to make the right choices to secure what was important’
Lisa Fryer, Associate and Operations Manager, JGA
Making clear communication a priority
However, in August, rumours started which had the potential to cause problems so JGA swiftly supported on-site briefing sessions for employees to prevent misinformation and avoid confusion.
‘Everything got back on track,’ Lisa explains. ‘Key clients and suppliers were contacted just ahead of the signing, culminating in a public statement on the eve of the transaction and an early night for the recently-appointed MD, Craig Taylor, in readiness for the big day.’
Then the call from the night shift came. The morning light revealed the damage. The Fire Service had done an amazing job but the impact was extensive.
The planned signing of the EO agreement was off, as the focus switched to securing Pym & Wildsmith’s survival. Months of communication with insurers, contractors and clients followed, while rebuilding plans left no space or energy for employee ownership. Pym & Wildsmith finally (formally) transitioned to employee ownership on 1 July.
Pride in an EO transition well done
Returning for last week’s party, Lisa was struck by Craig’s ‘pride in his amazing team’, as he introduced them to their new company plans.
As he explained: ‘What I saw that day [after the fire] was nothing short of a miracle. When the chips are down, we get things done.’
‘They’re not kidding!’ Lisa agrees. ‘Congratulations to Pym & Wildsmith from all at JGA for making it past this post. We can’t wait to see your next milestone and are excited to be joining you again on your journey now you’re officially employee-owned.’
If you’d like to know more about how JGA can support your organisation through our Transition, People and Governance services, please get in touch here.
EO’s record growth: New stats revealed – and JGA’s verdict
It was the standout figure of the day – 1,000-plus and counting: that’s how many UK companies are now employee-owned. This encouraging news, and other evidence of EO’s continued growth, was unveiled by the Employee Ownership Association as it kickstarted celebrations last Friday for EO Day 2022.
Even better, that 1,000-milestone figure followed a record three years of growth, during which the number of employee-owned businesses (EOBs) has more than doubled – from fewer than 500 in 2020 to 1,030 today.
But what else in the EOA’s 2022 Report caught JGA’s eye?
The success of the Employee Ownership Trust
Lisa Fryer, JGA’s Operations Manager, was excited at the record rate of the EO sector’s recent growth.
She was also struck by report co-author Professor Andrew Robinson’s comment that EO is now in the ‘mainstream’ of British business, thanks to the ‘phenomenal success’ of the EOT (Employee Ownership Trust).
As the University of Leeds Professor explained: ‘EOTs are so attractive because they enable business owners to step back without fear their company will be taken over by someone who does not value the culture, values and employees that are part of the business.’
Lisa agrees, pointing to the impact of 2012’s independent Nuttall Review of Employee Ownership by Graeme Nuttall. The review’s recommendations to government led to the creation of the EOT as a vehicle for promoting employee ownership – underpinning the growth of the sector today.
Supporting founders to make the right choice
‘JGA was established in 2014, at the time the Nuttall Review’s recommendations came in,’ Lisa recalls.
‘From the start, our mission has been aligned to helping owners / founders truly understand and prepare for what they want their version of EO to be.
‘In the years since, we’ve evolved new products and services around transition, people and governance to match the sector’s growth. It’s been a dynamic time to support this different way of doing business, alongside the other values-driven clients we serve.’
Putting values at the heart of good EO
Lisa’s particularly pleased to see values becoming a ‘must have’ feature of the modern workplace – and not just for the younger generations. The EOA’s 2022 Report reveals that 71% of EOBs have a statement of purpose, which includes making a positive contribution to society and the environment.
‘We work with many different models and mixtures of ownership – from 51% through to 100% EOT, and many below that level exploring if introducing an EOT is their next step in succession planning,’ she explains.
‘In our conversations with founders today, around legacy and employee ownership, even more are expressing their desire to retain the culture and ethos on which their business was built.’
‘EOTs… enable business owners to step back without fear their company will be taken over by someone who does not value the culture, values and employees’
Professor Andrew Robinson, Co-author, EOA 2022 Report
A more productive way to do business
So what else in the EOA 2022 Report stood out? Here are some final headline stats…
The top end of the EO sector continues to out-perform the rest of UK business in terms of productivity – at between two and three times the national average.
96% of EOBs say looking after the workforce is a key measure of business success.
97% of EOBs have at least one form of employee governance – 74% have at least two.
90% of EOBs report that employees have some or a lot of say in decisions on working conditions – 85% have some or a lot of say on new working methods.
To find out more about how JGA can support your EO business with our Transition, People and Governance services, please get in touch here.
JGA @ IRM UK's Business Change & Transformation Conference 2022
Most of us can probably guess why developing personal resilience will support businesses to deliver change effectively, but did you know it can also get in the way of success?
This surprise fact (and the neuroscience behind it) was just one of the insights shared by JGA’s Corrine Thomas during her session at IRM UK’s Business Change & Transformation Conference Europe in London last week.
Corrine, who is our Coaching Lead, was at the event with our MD Jeremy Gadd to offer ideas and practical tips based on her own research into resilience involving professionals working in change.
She used her interactive session to explore resistance to change and how resilience can support change readiness.
Supporting resilience to prepare for change
Starting with an overview of personal resilience, she then covered resilience at work and how personal resilience can support, or hinder, the success of a change programme. She also shared practical tips to build resilience for individuals and teams, welcoming questions and feedback form the audience at the end.
‘I was asked if everyone resists change, even people who work in fast-changing entrepreneurial environments,’ Corrine reveals.
‘I explained that we all go through an emotional reaction to change and can adapt very quickly in some contexts, but the process can take longer in others. In many business environments there’s a lot of change, yet we do take time to adapt and be ready for making changes.’
Corrine was also asked about the value of connecting with others and talking about the challenges involved in change. ‘I replied that if, as a leader, you model the behaviour you’d like to see then this will set the norm,’ she says. ‘If it’s normal for people to reach out to colleagues when faced with challenges, then people are more likely to do this.’
Challenging the ‘norm’ to deliver successful change
As well as delivering her own session, Corrine enjoyed learning from other change experts at the conference. ‘There were many high quality presentations and I left with plenty of new ideas to put into practice,’ she says.
‘We all go through an emotional reaction to change and can adapt very quickly in some contexts, but the process can take longer in others’
Corrine Thomas, JGA Coaching Lead
Her top four conference sessions were:
Be More Pirate: Alex Barker, co-author of How to be More Pirate
‘This was about being prepared to do things differently. It can be hard, but that’s how change happens. Alex talked about being willing to go into the unknown and taking small but bold steps.’
Challenging the Narrative and Enabling Effective Change: Dr Debra Paul, MD, AssistKD
‘Debbie spoke of how ‘agile’ and ‘value’ have become buzz words with little attention to what they actually mean when delivering change. She proposed a model for getting to the essence of change and delivering it effectively.’
‘Change? Plunge into it, Move with it and Join the Dance’: Jim Bird, People & Change Partner, University of Leeds
‘My takeaway here was Jim’s advice to engage people in change early, focus on communication and engagement and assess its impact on people, processes, information, technology and the organisation.’
Connected Change: Mark Williamson, Head of People Consulting, KPMG
‘Mark spoke about the importance of taking a holistic view of transformation and embedding the people aspects of change across all of it.’
Putting your people at the heart of change
Corrine strongly agreed with the need to ‘put your people at the heart of any change, creating an environment where everyone can have their say’.
As she points out: ‘Employees want to be engaged, feel they belong and be connected to your company’s purpose. Understanding how to align their personal values and purpose with your business’s purpose and mission is especially important during times of change. It’s important to appreciate others’ perspectives.’
The IRM UK conference was a major gathering of change professionals. So did anything surprise Corrine this year?
‘There was still a lot of talk about agile methodologies and tools to enable change,’ she says.
‘These frameworks support change and it was refreshing to hear people talk about the tension between slowing down and taking time to listen to the voice of employees – versus the pressure to be more agile and implement a solution quickly. I’m a big believer in the value of taking small steps towards change.
At JGA, we support values-driven organisations to prepare for and successfully navigate their own way through change, with our range of Transition and People services. To find out more
Succession Planning – the importance of expert valuation when selling to an EOT
In the second of our new guest blogs, we ask Tom Lethaby, Business Development Manager of RVE Corporate Finance, why selling your company to an EOT could be the right approach for your succession planning – and how an expert valuation will ensure you agree a fair price.
Selling your business is likely to be the most important financial transaction you’ll ever undertake. It can be a stressful, costly and exhausting process which might not deliver the outcomes you had hoped for.
Since 2014 over 700 business owners have sold their companies to an Employee Ownership Trust (“EOT”). High profile examples of this sort of sale include Go-Ape (2021), TTP Group (2021), Richer Sounds (2019), Riverford Organic Farmers (2018) and Aardman Animations, the creators of Wallace and Gromit (2018). An EOT sale process tends to be a less stressful and less risky exit route for business owners - but it isn’t right for all types of businesses.
Managing your succession planning risk
An EOT is a low-risk transaction when compared to other types of exit process. It is essentially a form of share buyback, through which the shareholders of the company sell their shares to a newly formed EOT at a fair value, and the EOT pays off the purchase consideration using the historic and future profits of the company, which typically takes 5-8 years. In a sense, this is an internal transaction. The process isn’t reliant on any third-party buyer or bank, and the purchaser (the EOT) does not need to undertake extensive due diligence – the execution risk is therefore much reduced.
So how does the newly formed EOT decide what price to pay for the company it is buying?
The EOT is a trust which has a fiduciary duty to act in the best interests of the employees of the company. It is acting on their behalf to purchase the company from the existing owners. The Trustees (who typically comprise a mix of employees, independent professionals and perhaps also the company founder) must therefore pay a “fair” price and this is established through an independent valuation carried out by a corporate finance or accounting firm (such as RVE Corporate Finance “RVE”).
Agreeing a fair price for your business
There are several valuation methodologies used when assessing a company’s worth – generally either linked to profitability or revenue and occasionally linked to asset value.
Most EOT sales have been for small businesses, typically worth less than £20m (although the largest EOT deal on record was completed by our team at RVE last summer for £275m) and an EOT can be appropriate for businesses worth just £1m-£2m. To help guide valuations for these SMEs there are several organisations which provide M&A transaction data to corporate finance and accounting professionals. Transaction data is often segmented by company size and industry sector. Mark2Market, CMBOR and UK200 all regularly report both revenue and profitability multiples paid for SMEs – and it is the latter which would most commonly be used in assessing the value of a business for sale to an EOT.
When a company is sold to an EOT the objective is to create a perpetual partnership-style structure, similar to that used by the John Lewis Partnership - indeed the benefits of the “John Lewis Model” were heavily referred to by the Coalition Government at the time of the creation of the EOT legislation in 2014. An EOT allows employees, as shareholders through the trust, to benefit from the future stream of profit that the company will produce – dividends can be paid in the form of profit share bonuses to employees once the initial purchase consideration has been paid off (typically 5-8 years).
‘Although the largest EOT deal on record was completed in 2021 by our RVE team for £275m, most EOT sales are for businesses worth less than £20m – and the process can suit those worth just £1m to £2m’
Tom Lethaby, Business Development Manager, RVE
When RVE values a company for the purposes of an EOT sale, we produce a 10-year P&L forecast, with the company’s management, to model how profits will be allocated to pay down the purchase consideration and thereafter to pay profit share bonuses to employees. If the purchase consideration, based on a market value for the company, can only be paid down from profits over 10 years or more, then this is an indication either that the “market value” is too high for this particular company, or that the company is not well suited to the EOT structure (because it cannot generate cashflow to pay a reasonable purchase consideration within an acceptable timeframe).
Companies are typically valued on a debt free/cash free basis but retaining enough working capital for the business to fund its ongoing trading activities. If the company holds significant surplus assets, beyond what is needed for working capital, (e.g. surplus cash) then the value of these assets will be added to the debt free / cash free value to arrive at the fair value of the company. Surplus cash in the company can be used by the EOT to fund an initial “Day 1” pay down of the purchase consideration.
Claiming shareholder tax relief as an EOT
With any EOT sale shareholders will need to be patient, as the Company’s future profits are typically the only source of funds available to the EOT to fund the purchase consideration. It will take several years for the purchase consideration to be fully paid down and during this time shareholders will be holding a credit risk. Offsetting this risk however are tax reliefs that the shareholders can claim - HMRC grants a special 0% rate of Capital Gains Tax for shareholders selling to an EOT (“EOT Relief”) - saving shareholders typically between 10% and 20% of the proceeds that would otherwise be payable in CGT. The UK Government introduced EOT Relief in 2014 and remains highly supportive of Employee Ownership. Through EOT Relief the government is encouraging the sector to grow, as businesses that are owned by their staff are proven to be more productive and more resilient.
What should you do next?
In summary, we at RVE believe that all businesses owners should consider an EOT as part of their exit plans because it will deliver:
Competitive market-rate pricing for the shareholders
A sale process that is not driven by external parties
A sale which preserves the business as an independent entity, with its reputation and team intact
A significant saving in CGT
RVE Corporate Finance specialises in advising and structuring employee buyouts, where business owners sell their business to a newly-formed EOT.
Discover how we could support you to choose this option as part of your succession planning by contacting us info@rvecf.com.
The different approaches to making your company employee-owned
At JGA, we work alongside a small number of carefully-selected Trusted Partners – chosen for their shared commitment to the clients we serve.
In the first of our new series of guest blogs, we ask Robert Postlethwaite, MD of Postlethwaite Solicitors, to explain the four options founders/owners have when employee ownership is part of their succession planning – and why there is no one size fits all.
Are you thinking of making your company employee-owned?
If so, did you know that there are actually a small number of alternative ways you can do this?
As with most things there is no -one size fits all. The best approach for you will depend on you and your company’s situation. Let’s look at the different options available in more detail…
Employee Ownership Trust
This is by far and away the most common approach. Your shares in your company would be transferred to a trust which would then hold the shares on behalf of the employees. If the trust is a statutory employee ownership trust, all employees will share in the company’s ownership, so this is a good model to choose if you are committed to everyone having a stake. This approach also brings tax incentives, in particular an exemption from capital gains tax if you (and any co-shareholders) sell more than 50% of your company to the trust and also the ability for any subsequent employee bonuses to be free of income tax, so long as all employees receive them.
Employee Benefit Trust
If you prefer a form of employee ownership that allows greater flexibility (in particular if it is felt important to allocate benefit in the trust to selected key or senior employees) you could instead choose a more generic employee benefit trust. However, this option does not bring the same tax reliefs described for an Employee Ownership Trust.
Any form of employee trust will need to be run by trustees. These could include at least one employee, perhaps combined with an independent trustee. The trustees do not run the company, this responsibility remains with the directors and leadership team who will be accountable to the trustees.
Hybrid approach
Alternatively, you could choose the hybrid approach. This would be best for a company that favours an employee ownership trust holding a majority of its shares but also sees an advantage in combining this with personal share ownership. In this scenario individual employees (or some of them) would be permitted to hold shares but the trust would always continue to hold more than 50%.
Where employees hold any shares personally, they will each hold their own share certificate and can receive a profit share through dividends. They can then sell their shares back on leaving the company or perhaps earlier, potentially making a financial gain if the company has grown. They will also have a shareholder vote.
This scenario is often used to:
enable all individual employees to have their own personal ownership stake alongside a separate indirect stake through the trust, usually by the trust transferring some of its shares to employees
and/or
provide a special incentive for more senior employees, for example through the grant of share options.
Personal shares only
It can also be possible to create employee ownership in your company without involving any kind of trust, although this would be unusual and often complex. Most commonly, it would involve a new company acquiring your shares. The owners of that company would be its employees, each holding shares personally. Usually, this approach is inferior to one that involves trust ownership, but it could on occasion be the best solution.
This approach involves several moving parts, and for a company with large numbers of employees and/or significant staff turnover, it would involve substantial administration.
Can we as the current owners be paid for our shares?
Yes, it is common on a transition to employee ownership, whichever model you intend to adopt, for the current owners to be paid for their shares. Typically, this involves payment in instalments, funded from the company’s profits.
To find out more or if you would like to discuss an approach that would align best with your objectives, get in touch with Robert Postlethwaite, who would be happy to talk in more detail about the different options.
About Postlethwaite
Postlethwaite Solicitors are a team of specialist employee ownership and share scheme lawyers.
With top tier firm and lawyer rankings and over eighteen years of employee ownership and share scheme experience from a wide range of commercial transactions and situations, we are able to stand by your side and ensure you have a solution that is fit for purpose, commercially sound and wherever feasible, tax efficient.
Since 2003 we have assisted hundreds of businesses in setting up employees share schemes and over 70 companies in making the transition to becoming employee owned. We focus on helping our clients find the approach and structure that is right for them and then assist with putting it in place.
We’ll listen to what you want to achieve, carefully design a solution to achieve your objectives, and think ahead. We do not provide off-the-shelf or commodity solutions.
EO transition: Practical tips - from a business that's done it
NC2 knew becoming EO would be a journey, but didn’t realise how valuable the learning would be – until the pandemic hit.
Here, Financial Controller and Employee Trustee Abi Knight reflects on their first 18 months (and counting) as an employee-owned business – and shares practical tips for those considering the same.
‘Don’t do it during a pandemic!’ is one of Abi Knight’s practical tips for founder/ owners transitioning their business to employee ownership. And yet, the timing of NC2’s own transition – mid-national lockdown and major shift to remote working – created a unique opportunity to learn for the software company’s team.
NC2’s previous co-owners – Neal Criscuolo and Neil Crawford – had already decided to complete the legal transaction first, then give themselves and the business a year to ‘make EO work’, when they signed the company over in May 2020.
Pre-transaction discussions focused on fostering the right levels of employee owner influence. ‘Studies show that EO is good for a business and good for the economy,’ says Abi. ‘The challenge is understanding how to reach that point without becoming an organisation where you can’t make a decision unless everybody agrees.’
So how do you do that?
Here, Abi reveals what’s worked for NC2 in its first 18-plus months – and how a clear process and structure has created a lasting result. These are her practical tips.
1. Get involved with the EOA
Joining the Employee Ownership Association (EOA) – with the practical advice and networking they have – connects you with other companies in transition or further down the road. I also read books such as The Employee Ownership Manual (Robert Postlethwaite with Jeremy Gadd) and listened to podcasts.
2. Seek expert professional help
Every transition is different but you don’t have to do this alone. For NC2, J Gadd Associates’ guiding support was incredibly useful in shaping our project and focus. They patiently encouraged us to work out our own answers, so we were responsible for and fully managed our own EO transition. So get help, whether that’s from the EOA, J Gadd Associates or an equivalent service provider.
3. Set up your EO transition as a properly resourced and timed project
After the transaction, we gave ourselves a year to work out what EO meant for NC2 and were clear with our team that nothing would change on day one. Then we set up our EOT project. J Gadd Associates helped us create this structured approach – with a clear plan, workstreams and a Steering Committee sub-set of ‘volunteers’ who became the ‘opinion’ of NC2. You don’t have to stick rigidly to it, but the project structure, process and drumbeat of a regular meeting really focuses the mind.
‘Every transition is different, but you don’t have to do this alone. So get help, whether that’s from the EOA, J Gadd Associates or an equivalent service provider’
Abi Knight
‘Studies show that EO is good for a business and good for the economy’
Abi Knight
4. Be clear about when you want influence/opinion and when you’re asking people to make a decision
It won’t all be plain sailing – things were tough for us at times, especially with so much remote working. But understanding the difference between influence and decision-making, and the level of employee owner input you want, is important.
5. Communicate clearly, regularly and be honest
We had no agenda for what our project’s output would be, but we knew we’d get there by working together. We shared monthly updates, were honest about what we didn’t know and assured our employee owners we’d try to find out. As Financial Controller, I was initially concerned that being more open about our financials would mean people would challenge all sorts of decisions, but this didn’t happen. Treat people like adults and they’ll behave like adults.
6. Trust your judgement
We all want to get things right, but occasionally it’s okay to say let’s do it like this for now, and if it doesn’t work we’ll change it. At one point, our senior team were still worried about which decisions should involve employee owner influence, but we have to trust we’ll know when we get there.
So what now?
Abi concludes that one positive (and lasting) impact of the way NC2 has transitioned is the useful structure it’s brought.
‘Becoming EO has forced us to grow up as an organisation,’ she says. ‘Previously, we were very ‘laid back’, but we’ve learned that people do like some structure, do like some boundaries and do like some process. All those things will serve us very well for the future.’
If you would like to know more about how JGA can support you with your Transition, People and Governance services, please get in touch here
RVE tools supporting Employee Ownership growth
JGA are delighted to be a contributor for the RVE guide
When the team at RVE Corporate Finance asked for our input, we were only too happy to share some of our throughts on stakeholder planning.
We recognise that transferring your business to employee ownership can be a little daunting, for both owners and employees. Anything we can do to help make the transition easier has the advantage to the business in realising the benefits of employee ownership sooner.
Our contribution to this guide has a focus on stakeholder planning and gives an outline of some key section headings.