Member Article

Employee Ownership; a solution for succession planning and a way to drive growth

Employee Ownership; a solution for succession planning and a way to drive growth?

All family owned businesses sooner or later face the question, who is going to take over running our business? For many the answer is straight-forward with the next generation of family members eager to take the reins. For others, it may not be so easy; selling to a rival, a management buyout, even floating on a stock exchange are possibilities, but a growing number of companies are realising the benefits of selling to employees.

Co-ownership is a proven, successful business model, which is recognised to improve productivity and create wealth whilst providing a stable employment environment and generating a fair commercial return for investors. Statistics suggest that employee owned businesses far outperform more traditional structures: in Q1 2014 shares in quoted employee-owned businesses rose by 11.6% whereas the FTSE All Share (including investment trusts) fell by 1.5% (Source Capital Strategies Ltd).

Of course, for employee ownership to be successful, it must be accompanied by real employee involvement, but the benefits that arise are numerous and can include:

• Securing the legacy of the family business that may have been in existence for many years
• The opportunity for a long serving and loyal workforce to continue working in the business
• Lower levels of staff turnover, absenteeism and sickness
• Entrepreneurial spirit – because they are co-owners, staff in employee owned businesses are more entrepreneurial, innovative, engaged and committed to the company and its success

There are hundreds of employee co-owned businesses in the UK. They range from household names like John Lewis and Divine Chocolate to less well-known companies, and operate across many sectors including retail, architecture, legal services, paper manufacturing, engineering, technology, health, childcare and media. Such businesses currently contribute £30bn or 3%, to the UK’s GDP annually and this is expected to grow to 10% of GDP by 2020.

Importantly, successive governments in the UK have publicly pledged their support to the sector. In line with this, the current Government introduced the following measures to support its growth:

• The Chancellor set aside £75m p.a. to support the growth of employee ownership in the 2013 budget
• New tax incentives were confirmed in the 2014 Finance Bill
• Any UK business owner who sells a controlling interest (>51%) to their employees via an Employee Ownership Trust, will get Capital Gains Tax (CGT) relief on the total business sale price
• From October 2014 bonus payments made to employees from a controlling Employee Ownership Trust, will be exempt from income tax up to a cap of £3,600 per employee per annum

In spite of this Government support and projected growth targets, British EOBs traditionally suffer from limited funding options, as established providers of equity capital and debt are perceived as not fully understanding the needs of this niche sector. ISDX quoted Capital for Colleagues was founded to help bridge this gap; the Company, which listed earlier this year in March 2014, provides an all-encompassing service to established employee owned businesses and companies looking to undertake an employee buyout. Capital for Colleagues will provide capital investment through debt or equity to enable the incorporation of employee ownership and support growth. In tandem with this, the Company advises clients on what needs to be done to become employee owned and manages the project, working with experienced legal professionals to ensure a smooth transition to employee ownership status. As the only listed company focussed solely on investing in and supporting employee owned businesses, Capital for Colleagues has effectively introduced a new asset class to investors.

Peter Matthews, Managing Director of Capital for Colleagues Ownership Partners Limited said, “Employee ownership is gaining increased popularity and recognition as a business exit route and a way to drive significant growth and value for the business. Made famous by the John Lewis Partnership, co-ownership can increase staff retention, boost creativity, and generate growth. In addition, as rising numbers of businesses become employee owned, the sector becomes increasingly attractive for investors. Capital for Colleagues both invests in and advises companies that are either already established, or are looking to become, employee owned.”

More information on employee ownership and Capital for Colleagues’ unique service offering can be found on the Company’s website: http://www.capitalforcolleagues.com

This was posted in Bdaily's Members' News section by Capital for Colleagues plc .