Ben Smith, Founder, PRmoment.com
Welcome to the PRmoment Podcast.
This week we’re chatting to Charles Tattersall, chief executive of Citypress about why he decided to sell his business to his employees through an employee-owned trust, rather than via an acquisition.
In the show today we’re going to tell you agency owners out there all you need to know about taking your agency business into employee ownership. Charles will talk us through why he thinks agency owners should sell their business to their employees and how you can do it.
For background, Citypress is an £11m fee income PR firm which was independently owned and became an employee-owned trust in 2021.
And thanks to our PRmoment Podcast sponsors, The PRCA.
Here’s a summary of what and PRmoment founder discussed:
2 mins Charles talks us through what is an employee-owned trust and how they work.
3.30 mins Who controls an employee-owned trust and how much do the original owners of the business have to pass on to the trust?
“The previous shareholders cannot form the majority of the board on the trust”
5 mins “A trust is the steward of ownership, there are no direct shareholders…it’s a limited company that has directors but its article of association means it’s not owned by anyone, it exists for the employees of the business.”
8 mins A discussion of the advantages and disadvantages of the owner selling your business to an employee-owned trust compared to an exit via acquisition (both a trade sale and a private equity sale).
“The challenge with an MBO is ultimately finance…that a big barrier for a lot of organisations”
With an EOT “effectively the funding for the sale comes from future profits”
11 mins Why Charles is amazed that more PR agency owners haven’t gone the employee-owned trust route.
“One of the incentives is capital gains tax relieve on the sale.”
11.30 mins If you want more information about EOTs, The Employee Ownership Organisation is a good place to start.
12 mins While the advantages of an EOT exit are that it takes the risk and the uncertainty of the sale out of the for the owners of a business, are business owners going to get the same amount of money from an EOT exit compared to an exit via acquisition?
“It depends Ben…it comes down to supply and demand”
“If you run a business you always face a dilemma of what your potential exit is”
“There are a small minority of businesses that are attractive to an outside acquirer”
18 mins Where does the money come from to form an employee-owned trust?
“There are 3 types of payment our people get - their salary, their performance bonus based on how the business performs each year and when it comes to the profitability of the company, a certain proportion of the profits go to the trust and that is distributed to the people who are working for the business in that given year…so there’s a huge incentive for employees.”
21 mins What is the tax incentive from the UK government or business owners to give their businesses to their employees paid from future profits?
“It’s actually quite liberating (for me) not to be a majority shareholder of the company”
We (Citipress) have …had record years in 2021 and 2022 - our growth has definitely accelerated…Whether that’s all down the employee ownership is hard to say”
“Our staff turnover is single digit…I’ve spoken to a few other agency owners about employee ownership and I say (to them) this is potentially a massive competitive benefit that we will have and that you will not have in the future.”
28 mins Charles talks us through how a business might decide to become an employee-owned trust:
In our example you are a £5m PR firm, making a 20% profit, so £1m. You have 50 employees and 3 shareholders and £1m in the bank. You’ve had a few enquires over the years from people looking to buy the business but they have not gone anywhere.
“In a sale of any asset, so for (for example) shares in your company, the taxman applies capital gains tax…under EOT rules you get capital gains tax exemption.”
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