The pandemic has given many business owners an opportunity to pause and consider their succession plans. More and more are turning to employee ownership as the right means for them to achieve an exit. As the appetite for these transactions increases, so the EO sector continues to go from strength to strength.
The specific rules relating to employee ownership trusts (“EOTs”) have been on the statute books since 2014, but initially the response was muted. Many felt this was an ownership model more focused on large service organisations spinning-out of the public sector. However, there is now clear evidence that the EO sector has put these growing pains behind it. The greater profile of employee ownership amongst mainstream SMEs is now firmly established underpinned by more high-profile stories such as Richer Sounds which became EO in 2018.
In connection with EO Day on Friday, 25 June, the Employee Ownership Association has provided the most up to date evidence to demonstrate the growth of EO and the strength and depth of the employee-ownership sector. What does the evidence tell us?
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730
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The number of employee-owned businesses in the UK
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576
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The approximate number of businesses owned (or partially owned) by an EOT as of June 2021
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139
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The number of businesses which became employee owned via the establishment of an EOT in 2020
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72
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The number of businesses which transitioned to an EOT in Q1 2021 – representing a new record
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1 in 20
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The proportion of all private company sales as of January 2021 which are to an EOT (compared with trade sales, sales to PE etc.)
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Undoubtedly, the current uncertainty around capital gains tax rates is part of the EO growth story. A business owner selling a majority shareholding to an employee ownership trust will pay zero capital gains tax – a relief which was introduced by the UK Government to promote the EO sector to help better balance and diversify the UK economy. But the tax tail rarely wags the dog, and owners will more often point to a deal structure which helps to safeguard culture. Many shareholders of SME businesses don’t feel comfortable pursuing a trade exit where the future for the business and its staff can be uncertain. A sale to an EOT safeguards that hard-won culture and represents continuity for staff and customers.
Of course, employee ownership may not be for everyone. The benefits of a sale to the right strategic trade buyer or the value-add that private equity can provide will undoubtedly remain persuasive factors in the right circumstances. However, employee-ownership is now, rightly, seen as part of the mix of succession options on the boardroom table. As an exit strategy which benefits owners, businesses and their employees, there is an increasing number of businesses and owners that feel a succession to employee-ownership is the right path to follow.
Brabners have a specialist employee ownership team who can guide you through the process and advise you on how your business can become employee-owned.
Join us for EO Day 2021, a national celebration of employee ownership on 25 June 2021, and shout about why business is #BetterTogether for the individual, the business and the economy.
