Tag: agriculture

Starter for six – top tips for those considering EO

????????????The first of five CDS employee ownership events took place last week at animal feed manufacturer Galloway & MacLeod’s HQ in South Lanarkshire.

Here, CDS specialist adviser Glen Dott takes a look at why employee ownership can be the ideal solution for businesses thinking about succession.

Plan for the future

It’s essential for business owners to be planning for their eventual exit. By providing certainty for the future, company value can be maintained. When Ralph MacLeod decided to sell to his employees he shaped the future of his organisation and more importantly dictated the speed and terms of his exit. Furthermore, it meant that the MacLeod family’s desire for the business to remain in Stonehouse was honoured.

Value extraction

An employee buyout offers an incredibly flexible way for owners to extract value from the business. Not only did Ralph strike a deal at a reasonable price but the sale process was simplified without compromising on due diligence.

Tax efficiency bonus

The Galloway and MacLeod deal was designed to ensure the maximum tax efficiency for the family, the business and also the employees. New tax regulations – which came into force in April this year – can ensure that a sale to an employee owned trust is essentially tax free. Businesses controlled by an employee owned trust are able to pay a tax free bonus to employees of up to £3600 annually.

The owners at Galloway & MacLeod

The owners at Galloway & MacLeod

Trust, individual or hybrid share ownership?

Galloway and MacLeod has designed a structure in which the employee trust will ultimately be the majority shareholder. Employees can also buy or earn shares, which allows them to benefit from share value increases and dividends when the company does well.

Marathon not a sprint

The transition to employee ownership can take place over a number of years – 15 in the case of Galloway and MacLeod. The MacLeod family have taken the long view and the employee trust will buy 1/15 of the shares annually using an option arrangement which provides leeway for both the family and the employee trust.

Turbocharging effect

It’s essential for employees to understand and be involved in the buyout process. If everyone is an owner their objectives will be aligned and it is likely there will be a performance uplift. All available evidence confirms this – employee owned businesses where employees have a significant equity stake and an influence on governance are more productive than other business ownership forms. In many cases this can positively affect the ‘earn out’ for exiting owners.

To view the CDS guide to a successful succession, click here.

Going against the grain has led to success for Galloway & MacLeod

Donald Harvey, MD at Galloway & MacLeod

Galloway & MacLeod has roots dating to 1872, and is now one of Scotland’s most successful employee owned companies.

Here, Galloway & MacLeod’s managing director Donald Harvey explains the benefits the business model has brought to the agricultural firm.

Selling the business to the employees is the best succession option Ralph MacLeod could have chosen – for the company and for the employees. It can be an uncertain time when a business owner begins to think about exit from a business. When Ralph started to speak with me and thereafter the management team, his first concern was that we were kept informed and involved in whatever choice he would eventually make. It was the opportunity of a lifetime – owning the company!

The company began in 1872 and Ralph MacLeod was the third generation of the family to own the business. When the time came to think about handing over, Ralph was not clear on the options open to him. He did have strong views on what he didn’t want to do. Galloway & Macleod is a unique company, which is an important feature in the local community. Ralph wanted to find a succession route that protected that.

Agriculture is a fiercely competitive business, dominated by large players. As an example of this domination, there are now only two main players in grass seed supply worldwide. None of us wanted to see Galloway & MacLeod swallowed up by a large conglomerate. We pride ourselves in the strength of relationships we have with our customers.

Ralph MacLeod took the firm down the employee ownership route

Ralph MacLeod took the firm down the employee ownership route

If Ralph had chosen to sell to a trade buyer, then the danger was that the business would have become product driven rather than customer driven. To me, the move to employee ownership allowed us to maintain our independence and preserve our customer-centered focused approach, without a noose round our neck and an overdraft which would have had a big impact on the business.

There have been other benefits in the move to employee ownership. We now have 34 owners who all have a stake in the prosperity of this business. This means that most of the people come into work thinking like owners. They want the business to do well, and they know that they will share in the rewards of that success. We don’t have issues with absence or staff turnover; people enjoy being here. We are able to attract the highest calibre of recruit, and will always promote from within.

Alongside these benefits are challenges, particularly for the management team. How do we make sure that these owners understand how the company works and where our revenues and costs are? How can we ensure everyone has the information to enable them to make the best contribution possible? We had to take a very close look at how we communicated with our people, and how we make complex information accessible. We had to ensure our management team had the skills and support to do their job well. We don’t always get it right but we are quick to acknowledge and address our mistakes.

The owners at Galloway & MacLeod

The owners at Galloway & MacLeod

As Managing Director, I’m accountable to the 34 owners of this business. As these owners are the employees, they see and understand the process from prospecting to order fulfillment and the relationship we have with our stakeholders.  As our management team is running a business in an accelerated growth plan with high expectations, we meet challenges which can be hard to overcome. However, I’m sure we have the skillset and understanding to make these decisions, ensuring our values, sustainability and environmental impact are exceeded. Every day’s a schoolday!

The flip side is that I’m leading a team of people who have a stake in the future of this business. It’s in their interests to do as good a job as they can to ensure the company prospers. I’ve first-hand experience of the evidence demonstrated in the research: employee ownership is the most effective route to true employee engagement.

And it all seems to be going in the right direction. Sales are up 39% since 2010. We keep our customers and have won several new ones. Our employee satisfaction levels are extremely high.

As for Ralph, I’m delighted to say he’s still there for when we need him. He knows this business and its people inside out. It’s good to see him have the time to spend on his other passions of sailing and hill walking. Ralph MacLeod did a great thing for the employees of Galloway & MacLeod. The current owners know we have a lot to live up to, and we are all working to ensure we continue the legacy and deliver a prosperous future for our business.