Case study

PS Refrigeration

Background

In 1994 a conference on employee ownership caught the eye of Pat Sullivan, an owner of a small business in Nottingham. Mr Sullivan had started the business 25 years earlier. His health was not good and his son had carved a career for himself, independent of the family firm.

The options

Mr Sullivan had spent time and money in advertising the business as a going concern. 18 months before Nottinghamshire CDA became involved he believed he had secured a sale, only to see the deal fall through at the last moment. He then offered the business to the manager, but he was unable to raise the necessary finance alone. The only other option known to him - to voluntarily liquidate the business and sell the assets - would not have given the financial return Mr Sullivan was seeking or safeguard the jobs.

The process

Before meeting with the employees, Nottinghamshire CDA checked out the history of the company and made a brief assessment of its value and researched the market the company was in. The employees were then invited to a presentation on the implications of an employee buyout. They decided amongst themselves that they wanted to pursue the option further and a buyout team was formed to produce a business plan, arrange the finance, adopt the appropriate legal structure, develop their business management skills and finalise negotiations with the owner.

The raising of the finance

The employees raised 10% of the total purchase price amongst themselves. Two loans, one from the Industrial Common Ownership Finance Limited (ICOF) and one from Nat West Bank (who had been the bankers to the old company and were keen to retain the account) were arranged. An element of the total buyout price was deferred by the owner, until one of the loans was cleared. This assisted the companyÕs cash flow in the first few years.

After the conversion

The employees took the business over in April 1995. Since then turnover has increased dramatically and employees are beginning to see the rewards - better wages and a good non-contributory pension scheme have been introduced. Some staff found it hard to adapt to a new way of working and some left.

The whole buy-out experience has given them all confidence to tackle difficult issues. Jan Barlow, who was previously the office 'girl' and now undertakes the role of Company Secretary, said, 'I used to know so much about the business but was kept in the dark about various crucial parts. It was very frustrating - especially if decisions were being made that I thought were wrong. The buyout gave us all the opportunity to see the business as a whole. Everyone has to be completely transparent about what they do. Not everyone likes that and in our case someone went. It was a worrying time, but we pulled together and saw the thing through. I think we can cope with most things now.'