Small firms seeking buyers urged to look to their staff

Published on Monday 16 March 2009 20:14

EMPLOYEE buyouts have become a "strong proposition" in the recession, the head of the body created to encourage the setting up of co-operative businesses has claimed.

Sarah Deas, chief executive of Co-operative Development Scotland (CDS), urged owners of small firms to consider selling to their staff rather than putting their companies on the open market during the economic downturn.

Although employee buy-outs (EBOs) are still relatively rare, Deas said help was available to staff looking to buy businesses from their existing owners, including matching employees with long-term funding.

Speaking ahead of a seminar in Edinburgh tomorrow on setting up co-ops, Deas claimed that employee-owned businesses were 5 per cent more productive and had a 20 per cent higher survival rate than other business models.

Deas told The Scotsman: "I think employee buyouts are strong proposition.

"An employee buyout is driven by one of three situations: succession, restructuring or where public services, such as care homes, are being separated out from local councils.

"In this economic climate, restructuring is obviously a key issue for many businesses."

She added: "They have to be a viable business with potential but then we could supply our full support to management and to employees.

"We can also put employees in touch with people who will support their business, including tax-efficient methods such as trust structure."

Speakers at tomorrow's seminar in Edinburgh include David Erdal, former managing director of paper maker Tullis Russell, and Steve Parfett, managing director of Parfetts Cash & Carry, which is currently going through an employee buyout. Next week's seminar in Aberdeen will hear from Fred Bowden, managing director of engineering firm Woollard & Henry, and Nick Boyle, chairman of Highland Healthcare.

Deas said: "While restructuring will happen quite rapidly in the current climate, in terms of succession, ideally we would be trying to talk to the current owners at least five years before they plan to leave.

"The greater success in employee buyouts comes from those who plan early because you can do a staged buyout, which makes it easier to finance and maximise tax benefits.

"Funding is clearly an issue in the current climate but there are experts in the field who we can put employees in touch with."

She said mainstream funding could also be levered in to deals from the banks.

CDS was set up by the Scottish Executive in 2006 to develop co-operative businesses throughout both the Scottish Enterprise and Highlands and Islands Enterprise regions.

The Scottish Government is supporting CDS with 3 million over the next three years.