By Kristy Dorsey

The head of a specialist firm that advises businesses on the move into employee ownership has reported a “surge of interest” in the last few weeks following a pause during the opening months of the coronavirus pandemic.

Stirling-based Ownership Associates set up a record 11 Employee Ownership Trusts (EOTs) last year, and was on course to double that in 2020 before Covid-19 took hold in the UK. But despite – and in part because of – the economic crisis created by measures to prevent the spread of the virus, owner Carole Leslie said more than 10 companies have signed on in recent weeks to make the transition.

Having completed six EOTs covering approximately 150 employees at the beginning of this year, she now expects to comfortably surpass last year’s record numbers.

“The companies I am speaking to now are trying to get it done by kind of October-November time,” she said. “I think we might get to about 20 for the full year.”

Several of the firms now working with Ownership Associates are substantially larger than those that made the transition earlier this year, with staffing levels ranging from 40 to 60 employees. They operate in a variety of sectors ranging from construction and wholesaling to medical design and architecture.

A study released in June of this year by the White Rose Centre for Employee Ownership, a collaboration between the universities of Leeds and new South Wales, found that Scotland was second only to London in the growth of employee ownership. According to the centre’s calculations, London has recorded at 20.7 per cent increase in employee ownership since 2017, followed by Scotland on 17.3% and the south-east of England on 14.3%.

Despite the size of its population relative to the rest of the UK, Scotland accounts for more than one-fifth of the UK’s 470 employee-owned firms.

“Covid-19 and recent changes to the tax regime are making EOTs increasingly attractive to business owners when they are considering an exit,” Ms Leslie said.

“Merger and acquisition activity has suffered since the onset of the pandemic, while changes to the tax regime announced in the Budget earlier this year reduced Entrepreneurs’ Relief, meaning a sale to an EOT, which is already free of Capital Gains Tax, has become even more beneficial.”

Having said that, Ms Leslie said there are other equally compelling reasons why small business owners are increasingly turning to employee ownership. These include wider knowledge and understanding of the model, demographics as baby boomers move into retirement, and the feeling among many that the model fits with the ethos of their business.

“What we’re continuing to see is that it’s often the case that a business owner doesn’t want to see the business in the hands of a competitor, preferring to protect local employment and loyal staff,” she said. “From a strategic point of view, employee-owned businesses generally outperform more conventionally structured firms on just about every business measure.”

Among the deals completed by Ownership Associates during 2019 were two EOTs in Shetland with pharmaceutical consultancy ESPL and Laurence Odie Knitwear. Others included engineering firm GS Brown of Fife, demolition specialist Safedem, internet marketing firm Buzzbase of Dundee, engineering consultancy Grossart Associates of East Kilbride and the Scottish Gallery in Edinburgh.

None of this year’s deals have yet been announced, as firms have been waiting for the wider business environment to stabilise before going public.

“It is a shame in a way, because there is so little good news out there right now,” Ms Leslie added.

She set up Ownership Associates in 2010, having previously been managing partner for the consulting division of Baxendale Partnership. She also serves as a specialist advisor to Co-operative Development Scotland, the arm of Scottish Enterprise dedicated to supporting growth through employee ownership and co-operative business models.