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Alan
87 Posts |
 Posted - 08 Feb 2006 : 07:17:33
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Employee Buyouts
In 1996, the AEOA along with the accounting firm Price Waterhouse produced a guidebook entitled “Employee Buyouts” (the cost of production of which was funded by the NSW Government). Although this guidebook is now “out-of-print”, it is still provides very relevant and user friendly advice on the steps to be taken in implementing an employee buyout. It also provides some useful material on using ESOP or co-operative structures.
Given that this guidebook is still usable, demand for copies continues. However, only photocopies are now available. If you think that a copy (27 pages) would be useful to you, please drop me an email with your contact details at ahgreig@bigpond.com. The service will be free for AEOA members and $5 to non members (to cover printing and post).
The article below is a review of the "Employee Buyouts" guidebook that appeared in “ACCORD Magazine” in 2004. It is provided for your interest:
The Employee Buyouts Guidebook
The notion that employees should be able to own their business is not new. There have been successful employee-owned firms for decades. But only in recent years has the idea of employee ownership become firmly established in the mainstream of the economy.
Private business owners, trade unions, management teams, public companies, the various levels of Government: all have encouraged or implemented employee buyouts over the past few years. Indeed, whenever a business is changing hands - whether this is because of an owner retiring, or a divestment, or privatisation or the realisation of an investment, the option of employee ownership is now being taken seriously. For it is recognised that, as well as spreading wealth and giving people a voice in their company's future, employee ownership makes profound commercial sense, entirely appropriate for the competitive market economy. The most successful businesses are those which fully involve their workforce and realise the potential and commitment of their employees at all levels.
Other factors have converged to make employee ownership the natural development of the future. The concept of broader share ownership in business companies (including those operating globally) is firmly established. A better trained and more flexible workforce now expects greater job satisfaction and increased involvement in decision-making. Profit sharing schemes are widespread and, supported by new legislation, "Employee Share Ownership Plans" (ESOPs) are growing in popularity. The form which employee ownership is taking is already showing many variations. ESOPs are not only a plan to enable employees to own shares in their employers' business - they can also be an important financing vehicle for implementing an "employee buyout" of a company.
Employee buyouts, where the majority of employees own the majority (or in some cases 100%) of the company they work in, have not been as common so far in Australia as they have been in North America and Europe. However, from some examples in Australia, they can be an option where the primary motivation for selling the company is because the business no longer fits within the plans of the owner (particularly where the current owner wishes to retire). Where selling a company to it's employees is motivated by the desire of owners to remove themselves from the active management of their firms (and recoup their investment), such buyouts have a high degree of success - with virtually all remaining financially viable, and most remaining employee owned.
Some years ago (1996), a "How to" handbook - entitled "Employee Buyouts" - was published by accounting firm PricewaterhouseCoopers (with sponsorship and editorial support from the NSW Department of Fair Trading and the AEOA). The booklet - which is still available (in hard copy) and relevant - details a number of ways to structure employee buyouts. The booklet is available from the AEOA by contacting us with your name and address. The booklet contains two case studies and details all the steps for performing an employee buyout.
To be successful, employee buyouts, - like all firms - require sound management, adequate financing and a viable market for their products or services. Beyond that, employee-owned firms have two additional requirements: an effective, fair system for handling the mechanics of employee ownership (such a share valuation, procedures for selling or purchasing shares etc.) and a management culture which promotes communication and helps develop employee skills for participating in decision-making. Studies show that ESOP firms with employee participation are significantly more successful than conventional firms (or ESOPs!) without participation.
Employee buyout projects are welcome to contact the AEOA. While the AEOA does not itself provide business advice to such projects, it can provide you with a list of consultants who might be able to assist. It also has more general information, which can assist with the planning, development and implementation of "employee buyout" proposals.”
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Alan
87 Posts |
Posted - 05 Mar 2006 : 06:50:34
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The Mercury Centre (www.mercury.org.au) has recently produced a "revised" version of this Guidebook which is now available electronically. It can be accessed at the web page below:
http://www.mercury.org.au/ownership-strategies.html
Look for the "Reference Material" section below and click on Employee Buyouts Guide:
"Employee ownership of a business can be achieved through a process called an "employee buy-out". This Employee Buyouts Guide sets out what an employee buy-out is, when a buy-out is appropriate and why a buy-out should be considered. It also deals with the forms of buy-outs and the steps in performing a buy-out."
We hope you find this "update" useful.
Alan Greig
Director, Ownership Strategies
The Mercury Centre
An extract from this guidebook (Page 7)
Financially viable proposition
A successful employee buy-out could be defined as the purchase of predictable cash flows at an economically reasonable price. This definition refers to two key factors which must be present for the buy-out to be a success:
1. Reasonable purchase price
2. Strong cash flows
It is obvious that a buy-out cannot succeed if the purchase price is excessive. An excessive purchase price will require an upfront cash outlay and subsequent interest payments which, if funding can be achieved at all, will place too much pressure on subsequent cash flows, with the result that the business will fail.
The business must have the ability to generate cash flows sufficient to enable the repayment of debt, and provide a satisfactory return on equity. The need to reduce the initial high level of borrowings inherent in buy-outs means that the generation of a strong cash flow is of paramount importance.
The cash flow should be reasonably predictable and not immediately absorbed into providing working capital finance (ie. finance for day to day activities) due to the cyclical nature of the business or an uncontrolled rate of expansion. A high level of fixed asset expenditure due to a lack of investment before the buy-out can also place pressure on the cash flow.
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Alan
87 Posts |
Posted - 07 Oct 2006 : 09:06:21
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One of the original authors of the Employee Buyouts handbook - Anthony Jensen - is organising a Conference on employee buyouts which is being sponsored by the Workplace Research Centre and Members Equity Bank.
The Conference is called "New Directions in Employment and Financial Security: Rethinking Employee Entitlements, Employee Buyouts and the Role of Superannuation Funds". It will take place on 23rd November, 2006 in Sydney. Speakers include Industry Super Fund experts, the ACTU, ACCI and buyout and employment specialists.
For more details on the Conference, see the "2006 News" page on www.aeoa.org.au.
Alan Greig
Public Officer
AEOA
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admin
631 Posts |
Posted - 29 Jan 2007 : 11:38:04
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The UK Government has recently established the web-site "How to achieve an Employee Buyout", as part of its "BusinessLink" service, to assist retiring small business owners with business succession and exit.
You can see this web-site - and the very comprehensive advice it provides - at:
http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1077622221
The front page of the web-site is as follows:
Practical advice for business: How to achieve an employee buyout
Introduction
If you own a business, you need to decide what will happen when you want to retire or sell the business. And it's worth thinking about sooner rather than later, so that you have as much time as possible to plan.
An employee buyout is an increasingly popular succession option. In effect, you sell the business to its employees. The employees become the new owners - though often most existing business and management structures stay in place.
An employee buyout like this can be a good way of ensuring the future of the business, with a highly motivated workforce. At the same time, it can also be an effective way of realising a good price for the value you have created.
This guide explains the advantages of an employee buyout and the key issues you need to consider.
Subjects covered in this guide:
Introduction
Why consider an employee buyout?
Alternatives to an employee buyout
Planning for an employee buyout
Forms of employee ownership
Key stages in an employee buyout
Financing an employee buyout
Running the business after an employee buyout
Help and advice for employee buyouts
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admin
631 Posts |
Posted - 31 Jan 2007 : 03:36:03
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As mentioned in a post above, Anthony Jensen (one of the original authors of the "Employee Buyouts" guidebook) produced a report for the Conference on Employee Buyouts and Employee Entitlements which is called "Insolvency, Employee Rights & Employee Buyouts - A Strategy for Restructuring ".
This report provides an excellent summary of the development of EBOs - and Government policies in support of EBOs - in many countries.
The paper can now be seen on the EFES (European Federation for Employee Share Ownership) web-site page "Employee Buyouts and Company Rescues" by clicking on:
http://www.efesonline.org/fasuk271.htm
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admin
631 Posts |
Posted - 31 Oct 2007 : 14:56:33
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Six Issues Employees Should Consider in a Buy Out.
From: The Employee Share Ownership and Investment Association (ESOIA), Canada.
What questions should employees be asking themselves if they are considering the possibility of buying a business?
When ESOIA looks at potential employee buy-outs, it undertakes a quick analysis of six issues to determine if there is justification for risking the employees money and possibly public resources. Generally, ESOIA will not recommend proceeding unless it can identify special strengths or advantages in at least three of the following six categories:
1. Leadership: Is entrepreneurial management experience available for the new worker-owned firm? The key people must be associated with the old company or easily accessible from outside as well as willing and able to provide leadership in the ongoing development of the new employee-owned company.
2. Market and Product: Does a market exist? Are there different products or new markets which are particularly suited to the skills of the workforce—and for which the new company can offer some particular advantage, such as proprietary product lines?
3. Capital Needs: This category has two aspects which are always considered:
• How capital intensive - measured in dollars per job – is the proposed new business? The more intensive, the harder it is to finance.
• How much money is available for the enterprise from within the workforce and from its outside sources?
4. Assets for sale: Certain assets—such as plant, equipment, inventory, patents and the like—may be for sale. Are the assets suited to the new enterprise? Are the fixed assets - the plant and its equipment—in good condition, and do they offer any special advantage, such as state-of-the-art technology?
5. Workforce Expertise: Are the skills of the workforce appropriate for the new company? If the middle-management positions are necessary, do experienced personnel exist? Are people sympathetic to a worker-owned company?
6. Time: This is a constraint that is almost always a factor in an employee buyout. Is there enough time to put the business together before key workers are lost to other jobs, or customers find other suppliers? How much time is available to put the transaction together and develop a plan for the new business? Other time factors may also be critical: for example, will some opportunity open up or close off in the near future, such as a close competitor leaving or entering the market?
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admin
631 Posts |
Posted - 15 Nov 2008 : 08:42:40
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Employee Buyouts Forum
The Australian Employee Ownership Association (AEOA) is commencing to build a "coalition of interests" around employee buyouts as a job saving strategy in the approaching "hard times". The objective is to establish an "Employee Buyouts Forum" which can apply skills and advocoacy towards the implementation of "company rescues" via employee buyouts. The work will be based on experience with EBOs that followed the two market downturns in the 1982/83 and 89/91 when a number of EBOs occurred in Australia (and there were a number of "good attempts" as well).
The reason this strategy is being considered is because in the past few weeks, many SMEs/private companies have been informed by their banks that further credit - beyond what they currently have - would not be available to them. Credit may even start to be called in shortly from the more 'over-extended' SMEs.
Within 6 months therefore, there may be be many SMEs under pressure and looking to urgently to swap debt for equity.
If the experiences of the two past recessionary events mentioned are anything to go by (and the circumstances of the current financial crisis is different to both), there will be many opportunities arising to extend employee ownership, especially through management buyouts with attached ESOPs, employee buyins and - less frequently - fully fledged employee buyouts.
There is some interest in the trade union movement towards considering employee ownership as a defensive, job-saving strategy in the current climate (forecast 300,000 retrenchments in the next six months).
Interested organisations/individuals wanting to be part of this project can conact me at the email address below.
Employees in companies under threat of sale or closure can make contact with a view to seeking assistance for an EBO. Employees considering establishing "early warning committees" on the current financial position of their employer are also encouraged to make contact.
Alan Greig
Public Officer,
Australian Employee Ownership Association
ahgreig@bigpond.com
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admin
631 Posts |
Posted - 20 Feb 2009 : 09:04:17
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Almost 7,000 companies facing collapse: Dun and Bradstreet
Posted Tue Feb 17, 2009 at:
http://www.abc.net.au/news/stories/2009/02/17/2493891.htm?section=justin
A survey has found almost 7,000 Australian companies are close to collapsing this year.
The survey's author, Dun and Bradstreet, says that is 12 per cent higher than last year.
It says firms in the finance, insurance and real estate sector are the most at risk.
Dun and Bradstreet's chief executive, Christine Christian, says the risk of insolvency has surged because businesses are not paying enough attention to their cashflow levels.
"Many companies have been relying on cheap funding from banks and they have taken their eye off the basic fundamentals of business," he said.
"That is what's emerging from the latest research, many businesses are just not managing cash-flow sufficiently."
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admin
631 Posts |
Posted - 20 Feb 2009 : 09:48:38
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ESOPs: Increased Resilience and Likelihood of Firm Survival
From: Effects of ESOP Adoption and Employee Ownership: Thirty years of Research and Experience by Steven F. Freeman, University of Pennsylvania, January, 2007 (page 13). The full report of this excellent study can be seen at:
http://repository.upenn.edu/od_working_papers/2/
Research indicates not only that employee-owned firms are more profitable and productive, but that they also survive longer.
Several large-scale studies show that employee-owned firms are significantly less likely than their counterparts to go bankrupt or disappear for any reason at all.
Park, Kruse and Sesil (2004) tracked data on all U.S. public companies as of 1988, following them through 2001. Companies with employee ownership stakes of 5% or more were only 76% as likely as firms without employee ownership to disappear in this period. Out of 245 firms in which employees owned 5% or more of the company in 1988, 124 (50.6%) were still in business in 2001; only 97 (41.8%) out of a matched sample of 232 non-employee-owned firms were still in business in 2001. (The entire 1988 population of non-employee owned public firms consisted of 5432, of which 2301, 42.4%, had survived.) In every category tracked (Merger or Acquisition, Bankruptcy, Liquidation, Reverse Acquisition, Leveraged Buyout, Privatization, Other, and Missing) non-employee owned firms disappeared at a greater rate than employee-owned firms.
These findings were congruent with those of Blair et al. (2000). Their study tracking U.S. public companies from 1983, found that those with substantial employee ownership stakes were 20% more likely than their industry counterparts to survive through 1995.
In a current project reported on the NCEO website, Blasi and Kruse (2007) track all privately held companies with ESOPs in 1988, and found they had similarly higher survival rates than closely matched firms without ESOPs. Among 1176 private companies with ESOPs in 1988, 69.6% survived through 1999, compared to only 54.8% of non-ESOP companies in the same industry and of the same size.
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admin
631 Posts |
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admin
631 Posts |
Posted - 17 Mar 2009 : 08:55:47
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Redundancy? No! We bought the company
From: http://www.guardian.co.uk/money/2008/jan/12/workandcareers
What would you do if your boss decided to sell up and ship out? Anne Gulland meets some enterprising employees who clubbed together to buy - and run - the firm
Anne Gulland, The Guardian, Saturday 12 January 2008
It's a grey Monday morning in January. You get to work and the boss's Jag is not in its usual parking space. A stranger informs you that the owner has sold the company and is now reclining on a deck chair in Barbados enjoying the fruits of your labour.
Four years ago the employees of Alphabeds turned up for work one morning to discover their boss was retiring and that they had a choice: buy the company or face redundancy. For Mike Donoghue, a woodworker at the small manufacturer of bespoke beds in Carmarthenshire, the decision was simple and with a £75,000 loan from a specialist lender and a grant of £25,000 from the Welsh assembly, he and his colleagues bought the company and now run it as a cooperative.
"In this part of Wales jobs are few and far between," he says. When the owner came to us and said he was retiring, it was clear that we had to find a way to maintain our incomes."
Donoghue, who is now company secretary, and four other colleagues, including his wife Lynda, invested their redundancy pay into the factory while the other 16 workers bought 100 shares at £1 a share.
While safeguarding jobs was the primary reason for buying the company, Donoghue says there have been spinoff benefits too, as workers have become more close-knit.
"The previous owner used to employ a lot of itinerant workers and little cliques formed around the factory. Now we're all talking to each other. There's a sense that this is our product and this is our business," he says.
It has not all been plain sailing. While the shopfloor workers have seen their pay increase, Donoghue and his fellow directors have agreed to take a hike in salary only when the business is in better health. Alphabeds' central London retail outlet has suffered a drop in sales so the company is looking to move to a shop outside London.
One of the major headaches for employee-owned companies is plugging the skills gap once the existing owner has left, says Norman Watson, an adviser at the Wales Co-operative Centre.
"It means people from the shop floor having to take on a whole range of new responsibilities, from company development to marketing."
But Donoghue has no regrets. "We're all glad we took the initiative to buy the company. We've secured our positions and our income - and that in itself was a good move."
Donoghue describes what Alphabeds is doing as "altruistic socialism". It's not a term used at another employee-owned businesses, MJP Architects, based in London, but since the practice went down the employee ownership route in October, there is a similar feeling that employees now have a stake in the company's success. The basic structure of the practice has remained the same but two major changes have taken place - employees have the opportunity to vote on directors joining the board and they get a share in the profits.
Managing director Jeremy Estop says employee ownership gives the practice stability: "If a director retires, we don't get into the situation where we have to value the shares and buy them out. Directors don't have to buy into the company. It enables people to be appointed on merit rather than on their financial means. The practice carries on regardless when a director leaves or joins the board."
And it's not just in the private sector where workers are taking over. Three years ago nurses Carol Sears and Anne Hamerton faced a dilemma when the GPs who were running their practice in Hanwell, west London, retired: work for a new set of doctors they didn't know, or take on the practice themselves. In an unusual step they decided to bid for the contract to run the practice.
They beat 11 other bidders - including private companies - and, with the backing of social enterprise company ECT, won the contract. While it was unlikely that they would have been made redundant under new management, the nurses tabled the bid because they didn't want the practice to be run differently.
"The practice was very patient-centred, and very family-friendly. It was unique. We didn't want to be taken over by a private company or by other GPs who might have different objectives to us," she says.
Sears, who is now clinical director, believes that they were successful because they had the support of staff and patients who didn't want the practice to change. And, significantly, they also got a nod of encouragement from Ealing primary care trust, which made the final decision.
Three years on the nurses have made the practice a success with one of the highest patient satisfaction scores in their area. Each of the staff at the practice - including Sears, Hamerton, and the three GPs who work there - receives a salary and all the profits are ploughed into improving patient care.
One of the biggest changes for patients is that they are just as likely to see a nurse practitioner as a GP. Hamerton, now operational director at the practice, says: "When patients are new to the practice they think they need to see a doctor. But when the nurse practitioner role is explained to them they are fine about it. They get to know the personalities at the practice and they are completely happy."
How to buy out the owner
Almost a third of company closures are succession failures - viable businesses which shut up shop because no suitable successor can be found, says a report by Co-operatives UK and the Employee Ownership Association (EOA).
But when going down the employee-buyout route, it is important to choose the right model. Graeme Nuttall, legal adviser to the EOA, says there are three options:
1. Keep all the shares in a trust. At John Lewis, one of the biggest employee-owned companies, staff receive performance-related bonuses equal to a percentage of their salary. Other firms operate different models.
2. Let all or most of the employees own shares directly. Employees can acquire shares over time, perhaps paid for through bonuses or from normal pay. Employees typically have to sell shares when they leave. For some this provides a better incentive.
3. Divide the shares between the employees and an employee trust - a combination of the first two options.
Nuttall says: "Generally it's easier to maintain an employee trust model, but for some this doesn't incorporate the right level of incentive."
Another challenge is raising finance, with few banks willing to lend money for employee ownership. Specialist lenders include the Baxi Partnership and Co-operative and Community Finance. Workers can invest their own cash, which obviously entails a degree of personal risk. Another option is vendor finance, where the owners selling the business take their cash over time.
The EOA estimates that it takes between six and 18 months to organise an employee buyout.
For more information visit www.employeeownership.co.uk, www.businesslink.gov.uk and www.co-operatives-uk.coop. For information on finance go to www.icof.co.uk and www.baxipartnership.co.uk. For tax relief information go to www.hmrc.gov.uk/shareschemes.
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admin
631 Posts |
Posted - 02 Apr 2009 : 04:36:12
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BUSINESS OWNERS ENCOURAGED TO SELL TO STAFF
Seminar told of benefits of employee buyouts
By David Telfer, The Press and Journal, Scotland, 27/03/2009
Employee ownership has helped Dyce firm Woollard and Henry boost turnover by more than 400% and diversify into lucrative new markets, it was revealed yesterday at an Aberdeen seminar.
The company, which makes machinery for the paper industry, was showcasing the benefits of employee buyouts with Inverness-based homecare provider Highland Home Carers, which has doubled sales to about £2.5million and increased its staff from 99 to 150 people since its employee buyout (EBO) in 2004.
The half-day seminar on EBOs in the Hilton Treetops hotel, attended by about 20 firms and business advisers, was hosted by Co-operative Development Scotland (CDS) to encourage business owners to sell to their staff rather than pursue the traditional route of a trade sale.
Founded in 1878, Woollard and Henry was sold to its employees in 2002 with the help of EBO specialist Baxi Partnership.
The company has since diversified into currency-making equipment, which is sold worldwide, and the design and supply of fabricated steel people carriers known as "frogs" used to transport offshore personnel between ships and rigs.
This year, the 37 employee owners will book sales of £3million-plus and carry forward £1.2million of orders.
Woollard and Henry sales manager Sean Malone said: "The employee ownership option works very well because, whether you're the cleaner or the managing director, your role makes a difference."
For Highland Home Carers founder Nick Boyle, selling the business to its employees allowed him to achieve his key goals of retaining the company's identity, incentivising staff and providing continuity of care to service users.
He said: "All these reasons blended together to make employee ownership a particularly attractive option.
CDS chief executive Sarah Deas said EBOs allowed exiting owners to continue their legacy, reward their staff, keep wealth in the local community and create businesses that were generally more productive and sustainable than other business models.
A subsidiary of Scottish Enterprise, CDS promotes the development of co-operative and co-owned business models across Scotland.
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admin
631 Posts |
Posted - 08 May 2009 : 07:24:55
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Leveraged ESOPs and Employee Buyouts
5th edition, February 2005; 218 pp., softcover. $25 for NCEO members; $35 for nonmembers.
A leveraged ESOP borrows money to buy shares in the sponsoring company in order to buy a major part or even all of the company. It can be used to purchase shares from retiring owners in private firms, buy out entire companies, or finance new capital. With leveraging comes additional cost and complexity that you will have to deal with. This book explains those complexities: contribution limits, special valuation issues, accounting, employee buyout feasibility, financing, using an ESOP to have one company acquire another company while giving the target company's seller the tax-deferred ESOP "rollover," and more.
To order from the US NCEO, go to: http://www.nceo.org/pubs/leveraged.html .
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admin
631 Posts |
Posted - 11 May 2009 : 05:14:49
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Employee Buyouts - ESOP Financing
From: American Capital Strategies at: http://www.americancapital.com/resources/buyouts/esops/esop_financing.html
American Capital assists owners, managers, workers and unions in in evaluating, structuring, negotiating and financing employee buyouts and Employee Stock Ownership Plans (ESOPs).
We specialize in providing liquidity for owners of privately held corporations and facilitating buyouts of divisions and subsidiaries of public or private corporations. American Capital helps clients restructure a company's ownership and control, and provides the financing that makes the new structure possible. We are experts at using ESOP financing techniques and utilize a wide range of capital strategies to structure the most advantageous transaction possible.
ESOPs have proven extremely effective in a variety of corporate transactions. When management and other employees want to acquire their firm or bid against competing firms to buy it, a leveraged ESOP may reduce the cost of borrowing for the transaction by as much as 30 percent. Furthermore, the principal payments, as well as interest payments on such debt, can be made with pre-tax income. An ESOP makes it possible to exchange ownership for employee-related cost reductions. This combination of factors makes a management and employee buyout highly competitive compared to non-ESOP bids.
When an owner wants to liquidate closely held stock, existing management and other employees may be the ideal buyer. The tax advantages of an ESOP-financed transaction can provide the seller with more value than other alternatives. Most importantly, the seller can roll over the proceeds and defer all tax liabilities. Debt service will be lower if accomplished through an ESOP leveraged buyout.
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admin
631 Posts |
Posted - 06 Jun 2009 : 03:25:51
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Employee Buyouts Tackle Job Shedding.
The AEOA has submitted a proposal to the Government to set up an Employee Buyout Centre (EBC) to provide a support service towards solving the following business problems and with the aim to combat job shedding and to save jobs in local communities.
The EBC would aim to present six "solutions" to six "problems" that may be seen on any industrial or commercial estate in any Australian community, as follows:
1. Problem: Plant on the brink of closure as a result of financial or other mismanagement, throwing all employees out of work.
Solution: EBC arranges for immediate "rescue package" for the plant, including investigation of causes, feasibility study for re-starting and business plan for re-financing if feasible, including finance package and a strategic employee stake in the business through a leveraged Employee Share Ownership Plan (ESOP). This will save most of the jobs in the plant. Re-structuring the business will involve employee participation in business improvement processes and workplace changes.
2. Problem: Business is one of many thousand in NSW which has cash-flow problems as a result of the economic downturn and initial under-capitalisation which is causing job losses and possible business failure.
Solution: EBC project works with the business to do a new business plan to swap debt for equity via the setting up of an ESOP to re-capitalise the business and save all or most of the jobs. Employee participation in the business will give business immediate productivity boost and innovations in business re-design.
3. Problem: Plant to be closed as a result of a strategic business decision to move production overseas resulting in all employees being made redundant.
Solution: Employees take over the plant and call in EBC project to work on a "rescue package" as per problem 1, above. This may result in the plant being re-started as an employee owned company where employee initiated re-structuring and business improvements may allow better and more profitable competition with imported products, and with most jobs saved.
4. Problem: Ageing business owner wants to retire and extract the value from the business as a retirement fund. Business placed for sale on the market but because of the shortage of buyers/investors is unable to sell and faces possible closure as owner sells assets to recoup value, with loss of all jobs.
Solution: EBC project works with owner to transition the business to the employees via an ESOP over a few years under a "succession plan" (leveraged or otherwise depending on the speed required to transition ownership and the cash flow of the business) thus saving all the jobs and making the employees owners without having to invest their own savings in the business.
5. Problem: Employees and their union get early warning that a business is in trouble as a "slow-down" in business causes employees to be put on short-time or take compulsory leave, with all jobs in jeopardy.
Solution: EBC project called in to look at the causes of the business down-turn and to partner in the re-vamping of the business via taking a strategic employee stake in the business through an ESOP which re-capitalises the business and initiating an employee-driven business plan to counter the "slow-down" or manage it in such a way so that the business survives the down-turn and re-installs growth when the "good-times" return, thus saving all jobs and perhaps creating more.
6. Problem: Business is sound but is "debt burdened" and requires an injection of fresh capital to aid in business growth (ie: swap debt for equity) which will protect jobs and potentially create more. Problem is that the business cannot find investors friendly to their business plan and workplace culture.
Solution: EBC project is called in the initiate fresh injection of capital via leveraged ESOP, thus protecting the jobs in the business, creating employee ownership and aiding business growth that will create jobs.
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admin
631 Posts |
Posted - 06 Jun 2009 : 03:29:50
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Stop Arguing With Companies and Become the Company, Unions told
AEOA Press Release, 3 June 2009
The Australian Employees Ownership Association (AEOA) is urging the Australian union movement to stop arguing with companies and to encourage employees to become shareholders.
The organisation made a presentation yesterday to delegates attending the ACTU Congress in Brisbane, discussing the need for Australian business to embrace employee share trusts as a way to fund business through the Global Financial Crisis (GFC).
In light of the recent budgetary employee share plan announcements, the AEOA will be calling on the Government to legislatively enshrine existing share requirements to encourage more businesses to set up employee share trusts.
“Employee ownership of companies is particularly important in this economic climate when various corporations are looking for injections of cash to stay afloat,” AEOA President Ian Woods said.
“Day after day, we’re hearing more and more companies crying out for Government funding or international investment to survive.
“By raising funds through employee share trusts, businesses can retain Australian ownership and ensure that decisions are made in favour of Australian and its employees - not just for foreign shareholders and the executive team.
An employee share trust is beneficial to both the company and the employees and can still attract favourable taxation treatment.”
Employee share ownership is implemented in about five percent of Australian businesses, compared to 20 percent in the USA and about 40 percent in France.
“The last year has shown us that the previous model of capitalism doesn’t work and that we need to look elsewhere to maintain economic growth into the future,” Mr Woods said.
“Unions should really be considering this as the model of the future as it provides the facility to enshrine excellent conditions for workers in all tiers of a company.”
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admin
631 Posts |
Posted - 22 Jun 2009 : 07:56:25
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The Upside of the Downturn
The current downturn has had very painful consequences for far too many people. People are losing their homes, their jobs, their retirement savings, and, often, most painfully, their dreams. Still, there are some potentially good things about the downturn that are worth thinking about.
Companies that share ownership broadly are less likely to go bankrupt. Researchers have found that companies that are partly or wholly owned by their employees are less likely to go out of business than comparable firms without broad ownership. The most important of the many reasons for this is that employees in these companies tend to be more engaged at work and more likely to come up with new ideas to save money and bring in new customers. That serves them well in good times, but can be a lifeline in bad ones.Tough times can make us less complacent and help generate new ideas.
The problem is that once something works for us, it's very difficult to risk making changes. It also makes it hard to consider other products, services, or processes that might be really good things to do, but might not. Yet nothing works forever in a market economy. Companies need to adapt and innovate. When times get tough and things stop working, we become a whole lot more open to new ideas.
If an employee ownership company is sharing information about its business with employees and giving them opportunities to come up-with ideas, it can have a real competitive edge over its stodgy competitors who don't consider employee ideas worth much attention.
It is said that nothing succeeds like success. Successful companies are better able to attract and retain good people, develop strong reputations in their market, can more easily raise money to expand, and may discourage would-be competitors from even trying to enter the field.
Times are tough. But by focusing on the lessons a downturn can teach us, we can also emerge a lot stronger.
From: The Employee Ownership Report, May - June, 2009, NCEO (US) www.nceo.org
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admin
631 Posts |
Posted - 16 Jul 2009 : 04:53:03
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Sit in saves jobs
From "New Sector" magazine (UK), July, 2009. (www.newsector.co.uk).
A new employee-owned business has started in Dundee. So why isn’t Co-operative Development Scotland delighted? David Parker investigates.
Seven workers sacked from a failed packaging company in Scotland have returned to work after a 51-day occupation. They are working in the same premises using the same equipment but now they own the business.
Their story was widely reported in the local media and on specialist websites as a triumph for workers rights and for co-operative business. However, there is confusion about the co-operative status of the new company, Discovery Packaging & Design Ltd. It is clear that the workers have a strong cooperative ethos but it looks as though the business support structures may have guided them away from a truly co-operative solution.
At the beginning of March all 12 employees at Prisme Packaging in Dundee were laid off with immediate effect and told not to expect any redundancy pay. Some of the workers refused to leave and occupied of the factory. The situation rapidly became a political fight for jobs.
In Scotland the local authorities are responsible for arranging the delivery of the business support service Business Gateway. Understandably, the local delivery organisation Enterprise North East Trust was under pressure to move quickly to save local jobs. The trust engaged Dr Jim Urquhart, who describes himself as an organisational psychologist, to help the workers plan and develop a new business.
“During the sit in the group really gelled together,” said Urquhart. “This cohesion gave them a sound platform to build a new business.”
Urquhart wrote a business plan for the group, but had great difficulty in finding finance to start the new enterprise. He said that the banks and other lenders “didn’t want to know”, but eventually they were lucky to attract significant investment from a local businessman who wishes to remain anonymous. Following this investment a bank was prepared to provide support.
During the occupation the workers were also visited by Glen Dott, a project manager for Co-operative Development Scotland (CDS). He also tried, without success, to access loan finance for the new enterprise. He told ns that he did not think that the people involved really understood how a co-operative worked.
Urquhart disagrees. “It’s definitely a co-operative. All the employees have a share in the business and it’s one member one vote.”
The point of contention is the external investor who, Urquhart says, has a significant number of convertible preference shares but no voting rights. Since ns has not examined the company’s articles of association we cannot say whether or not Discovery Packaging & Design Ltd is a ‘proper’ co-operative.
Sarah Deas, chief executive of CDS said she was disappointed that CDS had not been able to provide more help to the sacked workers while they were planning their new enterprise during a fast moving situation. “However, there’s no reason why we shouldn’t provide them with advice on running a co-operative enterprise in the future,” she said.
Despite the confusion about co-operative status, it is clear that the workers are full of enthusiasm for their new venture. ns talked to David Taylor the new managing director, appointed by the workers.
Taylor, who had worked for Prisme Packaging for 15 years, explained that Discovery Packaging & Design provides a bespoke service for cardboard packaging in a wide range of markets including industry, transport, gifts and retail display. “We can package anything from petrol pumps for delivery to Europe to gift boxes for whisky,” he said.
Taylor believes that Discovery Packaging & Design will succeed because the workers are totally committed to it. “This time we are all working for ourselves and we’ll share the profits. There’s a much better morale and that means customer relations will be better.
“In the old business the management didn’t make any effort to get new customers, so when they lost one big contract that was it. They were complacent and you can’t take anything for granted in business.
“The first few weeks have gone well. We predicted that a slow start and we’ve spent our first weeks doing marketing, but now the orders are starting to come in.
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admin
631 Posts |
Posted - 25 Jul 2009 : 03:25:24
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Bias Against Employee Ownership
In 1996, a major corporation solicited bids for the purchase of a 2000 employee subsidiary. The parent corporation had decided to concentrate on its main lines of business, and to get out of the tangential business of the subsidiary. Who was the highest bidder? The employees. Who was the winning bidder? A leveraged buyout firm. Why? Corporate bias against employee ownership.
The owner of a small company with $18million in sales suffered a fatal heart attack at a relatively young age. His widow, now the sole owner, put the company up for sale. An 84% employee-owned company in the same industry offered to team up with the management and employees to purchase the company. The widow announced her support for this effort. A bid was submitted indicating the inclusion of employee ownership. There was no higher bid, but did the employees win? No. Why not? To assist her in the sale, the widow hired a lawyer, who immediately objected to the employee ownership – not because there was a higher bid, but simply due to prejudice. All reference to employee ownership was subsequently excised from the bid so as not to offend the lawyer.
A $100 million subsidiary of a Top 500 company that manufactures a name brand consumer product was to be closed due to poor performance. The employees offered to buy it, paying more than the liquidation value, and guaranteeing positive cash flow during the time it took to consummate the transaction by reducing labour costs if necessary. Did the parent corporation gladly agree to the employees’ offer? No. They shut the facility, putting 600 employees on the street. Will they get more value through liquidating a closed facility than by selling an operating facility to their employees? No. Why did they do it? Callused corporate bias against employee ownership.
These are a few examples of ingrained corporate bias against employee ownership that I have encountered. Fortunately, there are some owners, managers and government officials who are receptive and supportive of employees’ desire to own a piece of their company. It is quite odd that at the same time as there is an unprecedented increase in employee ownership, particularly through the use of broad-based share option programs, there continues to be deep distrust of employees buying their companies.
It seems that the “not invented here” syndrome is at work. If the corporation initiates employee ownership, then it is a good idea. But if the employees initiate the idea, it is to be doubted, even if it is intended to save a plant that no other buyer wants. I often hear from senior managers of a selling corporation that the employees wouldn’t be interested in owning their own company, or that it would not be possible for them to buy it. And the most common rationalisation is that the employees would not want to invest their pensions in an ESOP company, something that is in fact almost never part of an employee buyout.
Corporate executives do love employee ownership as part of their own compensation packages. They want to enrich themselves with every stock option granted them. For many top executives, this can mean tens of millions of dollars annually. But when broad-based employee ownership is proposed by the employees who want to buy their companies, executives often look askance at the idea.
Somewhere deep within the psyche of the typical senior executives is an underlying attitude that there are owners and there are workers and the two should not mix. If an executive has control over whether the employees’ ownership initiative will be allowed to advance, then the odds are good that he or she will object to it.
At times, the bureaucratic tendency to cover one’s backside is all it takes to place an employee buyout effort at the end of the list. No one wants to be the executive who supported selling to the employees and risk having the sale blow up in their face.
To be sure, ignorance is a problem too. Many people still are unfamiliar with the concept of employee ownership. They often mistakenly think that only troubled companies are good candidates for an employee buyout, that it only works in steel mills and airlines, that it will take longer to execute, or that an ESOP offer is destined to be lower than the other bids. Even when these misunderstandings are overcome, the bias lingers.
Like women and minorities who will struggle to overcome institutional bias, working people must also strive to break through the tin ceiling that has traditionally prevented them from sharing the wealth of ownership. But first, corporate executives must recognise that working people are willing and able to assume the risks, rights and responsibilities of corporate ownership.
Editorial by Malon Wilkus, President of American Capital Strategies, an employee-owned investment bank (with several billion dollars of union pension funds under management, much of it invested in employee buyouts), and past Chair of the (US) National Center for Employee Ownership.
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admin
631 Posts |
Posted - 11 Sep 2009 : 03:23:25
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Media Release: Chris Bowen MP, Member for Prospect and Minister for Financial Services, Superannuation and Corporate Law, Minister for Human Services
New local Employee Buyout Centre to support over 600 jobs
September 8, 2009: Federal Member for Prospect and Financial Services Minister Chris Bowen today congratulated the Australian Employee Ownership Association (AEOA) for securing over $1.8 million in Federal Government funding for a pilot project which will support 603 jobs in the South West Sydney area.
The creation of the Employee Buyout Centre will convert a dozen salvageable businesses with 600 jobs at stake into viable firms. The centre will empower and assist employees to buy out the companies they work for, as an alternative response to deal with company insolvencies, closures and break ups in South Western Sydney.
“This pilot project is one-of-a-kind and well-suited to south-western Sydney with its thriving industries including building, transport, construction and light manufacturing,” Mr Bowen said.
“The work of the Employee Buyout Centre will go beyond the health of one company. Employee buyouts will support jobs, keep capital in the community and provide employees with a greater sense of workplace participation. Employees will have a real stake and interest in the success of the company they work for, and collectively own.”
The AEOA successfully applied for funding through the Federal Government’s Jobs Fund program which provides a maximum of $2 million funding for one-off capital projects to create jobs, build skills and produce long-term improvements in local communities.
“A range of job seekers and workers will benefit with the project expected to create or retain 603 jobs, 30 traineeships and 30 work experience positions,” Mr Bowen said.
The Employee Buyout Centre will be based in Fairfield and will work with local providers and business groups to offer mentoring and support services to businesses and employees throughout the buyout process.
About the AEOA
Since its founding in 1986, the Australian Employee Ownership Association [AEOA] has actively promoted employee ownership (or co-ownership) of the businesses where they work. It was formed by 20 companies as a member-focused, non-profit, private sector association to assist members with their employee ownership and participation efforts. Its mandate is to help Australian companies, trade unions and governments attain greater productivity and flexibility in the business sector, and to provide new jobs for Australians through shared ownership and workplace participation.
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admin
631 Posts |
Posted - 04 Oct 2009 : 04:03:28
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Employee buy-outs
From: http://www.employeeownership.co.uk/buy-outs.htm
Employee ownership is an increasingly popular solution to ownership or business succession. A growing number of business owners are opting to transfer their company on exit to their own management and staff - via some form of employee buy-out.
Succession Options
Well over 100,000 company owners face business succession or transfer in any year. The Department for Business, Enterprise and Regulatory Reform defines the principal business succession options for owners as a sale to:
- Members of the owner’s family;
- The company's employees, including management;
- An MBO; or
- External buyers
Selling the company doesn't have to mean a total exit from the business. It can involve a gradual purchase over time; or the owner might retain a stake and even a management role in the new ownership structure.
Why sell to employees?
There are compelling reasons for company owners to sell the business to the staff who already work for it.
- Successive Governments have created a range of tax advantaged schemes, like the Share Incentive Plan [SIP], which make structuring an employee buy-out feasible and rewarding for owner and employees alike.
- Selling to the workforce is a way for owners to recognise employees' role in helping build the business
Employee buy-outs have an excellent record of sustainability compared with management buy-outs, so the enterprise the owner created is more likely to survive
- Employee buy-outs are less likely than a trade sale to result in closure of premises in local economies which may rely on them for jobs and trade
- Allowing existing management and staff to buy the company puts control in the hands of people who know it best, and who will be most committed to making it succeed
- An employee buy-out means continuity for customers and suppliers
What is an employee buy-out?
- Employee buy-outs are simply a way of transferring ownership of a company from the previous owner to employees.
In an employee buy-out, cash is required to pay the outside owners, to buy all or most of their shares.
A valuable mechanism for making an employee purchase possible is a trust, acting on behalf of employees. This gives employees a vehicle for using the company’s own resources and/or a loan, to finance the purchase. Without this, employees would have to finance all the acquisition out of their own personal resources.
A typical employee buy-out sequence happens like this:
- Shares are bought by an employees’ trust
- The trust is financed by contributions from the company, or from a loan which is repaid from company contributions
- If the trust is financed by the company over time, it may take some time before the trust has received sufficient funds to finance the purchase of all or even a majority of the issued shares in the company
- If the trust is financed by a loan, this may enable it to acquire a majority shareholding or even all the issued shares in one go
The trust may retain some or all of the shares it’s acquired on a long term basis, or it may distribute shares to employees over time
- The intention may be for the company to remain wholly or partly owned by employees and/or the trust indefinitely
Employee Buy-outs Guide
The Employee Ownership Association is one of the advisers to a new online guide to Employee Buy-outs from the Business Link. The guide gives concise practical advice on why and how business owners should consider an employee buy-out if they're planning to sell their business.
Click:
http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1077622221
to link to the site.
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Employee Buyouts
