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1 2017 Results Sponsored by Sponsored by Compiled by

2 Employee Ownership Trusts Introduced in the Finance Act 2014 Encourages transitions to majority employee ownership Provides CGT relief for business owners who sell a majority stake to an EOT Provides the means to give income tax-free bonuses to employees The trust must operate for the benefit of all employees on similar terms The Survey In October 2015, the Employee Ownership Association (EOA) launched a survey of companies that had established Employee Ownership Trusts (EOTs). Following its success and the valuable insights it provided, the EOA commissioned RM2 to administer an evergreen version of the survey to continue to gather basic facts and opinions on the EOT model. These are the latest results from survey data as at 31 October 2017.

3 Number of responses 173 companies identified (25) unverified 148 known EOT companies (22) deemed EOTs 126 subject of survey 51 responses so far 40% response rate

4 The transitions took place 25% 20% After the initial surge, the number of EOT transactions appears to be regaining momentum 15% 10% 5% 0% Nov 13 - Apr 14 May 14 - Oct 14 Nov 14 - Apr 15 May 15 - Oct 15 Nov 15 - Apr 16 May 16 - Oct 16 Nov 16 - Apr 17 May 17 - Oct 17 Dec-13 EOT Introduced Apr-14 CGT relief Introduced Oct-14 Tax-free bonuses available Sample: 51 survey responses plus 16 public domain sources

5 Industry type The distribution of EOT companies across trade sectors is not dissimilar to the pattern found in the wider economy. Retail 4% Finance & insurance 5% Construction 3% Health 4% Other 6% Professional, scientific & technical 32% EOT companies and UK companies as a whole have two of the top three trade sectors in common Business administration & support services 6% Wholesale 9% Sample: all 126 new EOT companies Information & communication 15% Production 16% There are proportionally more EOT companies in production (aka manufacturing) than in the UK economy

6 Business size (employee numbers) Most EOT companies have 25 or fewer employees and nearly all are SMEs 60% 50% 40% 30% 56% The largest EOT company by employee numbers has over 2,500 employees EOT companies employ 11,600 people in total 20% 10% 19% 10% 8% 7% 0% Up to > 250 Sample: all 126 new EOT companies

7 Business size (turnover) 70% 60% 50% 61% EOT companies had sales turnover ranging from 150,000 to over 185 million 40% 30% 20% 24% Most EOT companies had sales turnover between 1m and 10m 11% 10% 0% < 1m 1m - 10m 10m - 50m 50m - 100m > 100m 1% 3% Sample: all 126 new EOT companies

8 EOTs now represent nearly half the EO sector New EOTs Deemed EOTs Total EOTs Total EO sector EOTs as % total EO sector No. of companies % Employees 11,600 92, , ,600 48% Sales Turnover 1.3 bn 10.2 bn 11.5 bn 25.6 bn 45% 1. For smaller companies that publish abbreviated accounts, employee numbers and sales turnover were estimated from total assets, which is disclosed for all companies, however small. 2. The total number of EO companies is estimated by EOA and the White Rose Employee Ownership Centre to be c Employee numbers and sales turnover for the total EO sector were extrapolated from the data compiled by RM2 for the annual Top 50 list of employee owned companies.

9 Heard about EOTs from 50% 45% 40% 35% 30% 25% 45% A key objective of the EOA is to raise awareness amongst advisers 20% 15% 15% 17% 10% 5% 4% 6% 9% 4% 0% Existing EBT Press Advisors EOA Word of Mouth Internet N/A Sample: 51 survey responses

10 Reasons for establishing EOT 40% 35% 35% 30% 25% 23% 20% 20% 15% 10% 11% 9% 5% 2% 0% Employee engagement Succession planning Retain independence Business improvement Tax/Bonuses Other Sample: 51 survey responses NB: Companies were able to provide multiple answers

11 Reasons behind the EOT Improved performance and the ability to share rewards and benefits realised. As well as clear succession planning and a controlled exit for the founders. To ensure the long-term future of the company by safe-guarding our independence and fully engaging our employees to ensure decision-making is solely focussed on the long-term benefit of customers and employees To improve employee engagement, provide for profit share bonuses to employees and ensure the longevity of the company. Future development, empowering the workforce and succession planning.

12 Size of EOT shareholding Most EOTs acquire a majority shareholding but not 100% 29% 9% <50% >50% 100% 62% Sample: 51 survey responses

13 Shares were acquired from Most new EOTs acquired their shares from existing shareholders 2% Founders Directors Existing shareholders 38% New issue 53% 8% Sample: 51 survey responses NB: Companies were able to provide multiple answers

14 Shares were acquired at 64% At fair market value At a discount Told us that vendors sold their shares at fair market value 7% 11% As a gift Combination 16% 64% Sample: 51 survey responses

15 Financed via 46% of respondents financed the transition with vendor loans 12% 15% 46% Vendor loan External bank loan Other external finance Upfront from the company Gifted Combination 6% 4% 10% Sample: 51 survey responses NB: Companies were able to provide multiple answers

16 Future plans to increase EOT shareholding? 53% of those who could said they had plans to or would consider increasing the EOT s shareholding 31% 3% Yes No 53% Unsure N/A 13% Sample: 51 survey responses

17 Transaction details 76% obtained a TIS clearance from HMRC 89% have an incorporated EOT trustee 91% intend to use the tax-free bonus facility 69% intend to claim CGT relief

18 Would you recommend EOT to others? 80% 70% 71% 60% 50% 40% 30% 20% 10% 0% 13% 8% 4% 4% 0% 0% 0% 0% 0% % of respondents felt positively about recommending EOT to other businesses Not at all Definitely Sample: 51 survey responses

19 Room for improvement? Standardised documentation and processes IHT relief on vendor loan notes Time-limited risk of clawback of tax relief from EOT Relief from loans to participators tax charge (needed where there are EOT transactions with external investors)

20 eot-survey.co.uk