Increase in founders and owners choosing employee ownership as a succession option
The employee ownership sector recorded a record 30% increase in the number of business transitions to employee ownership during the pandemic.
Acceleration of the use of the Employee Ownership Trust (EOT) is changing the shape and size of the employee-owned sector in the UK, with SMEs and family businesses using he model as a succession plan - a sale to an EOT now represents 1 in 20 of all private company sales (others being trade sales and sales to PE).
Deb Oxley, Chief Executive of the Employee Ownership Association, said:
“We have seen significant growth which we believe has been supported by a number of factors, but primarily the pandemic has seen owners take a sharper focus on succession…”
“Additionally, the awareness of employee ownership and its benefits is growing, supported by the newly launched Ownership Hub and its first partner region, South Yorkshire, which will support the growth of employee and worker ownership as part of its economic recovery and renewal plan – together these three factors have created a perfect storm for the growth of the sector.”
Since being introduced in 2014, the EOT has been the most popular model, with more than 580 of the 750 employee-owned businesses in the UK, being majority or fully owned using the model. Despite offering founders a sale free from Capital Gains Tax and employees and the option to pay a tax-free bonus of £3,600 to each employee every year, it is not just the incentives driving the growth in the model.
Evidence published in the report the Ownership Dividend shows that offering employees and stake and a say, and developing a governance and engagement structure that offers transparency and a voice in the operation and strategic direction of the businesses, empowers employees to drive increased performance. When this is done as part of a succession plan, it roots jobs in regions for the longer term.
Owner of Answer Digital, Gary Parlett, who transitioned his business to employee ownership after the pandemic hit, said: “If it’s solely about the tax benefits, then it is unlikely to be the right decision. But if it’s about succession and legacy, then employee ownership really is the right way to go…”
“The reality of employee ownership is not immediate, but 12 months into our journey and the team have absolutely embraced the notion that this was a huge step-change for the business, it’s been fantastic.”
Answer had plenty of offers to buy the businesses but felt that it could be more successful and grow in the hands of its employees.
In just over a year, the business has expanded its headcount from 70 to 100 and is set to have its strongest financial year to date. Parlett attributes both growth factors significantly to ‘empowerment and ambition within the company,’ as a result of the new employee ownership structure.
He said: “From a growth and retention perspective, employee ownership is significant. What I enjoy hearing most is that when they arrive, they immediately get a sense of that supportive culture and can feel it. That isn’t easy to achieve, especially during a period of such rapid growth.”