This company is based in Wrexham, North Wales. It repairs and manufactures commercial vehicle bodies. The owners had approached the local enterprise centre for help as they wished to hive off the repair part of the business to enable them to concentrate on selling new commercial vehicles.
The local enterprise centre then contacted the Wales Co-operative Development and Training Centre to provide specialist advice to the workforce. Early meetings with the workforce indicated that they were willing to purchase the repair business, subject to an agreed price with the vendors. All of them were willing to invest £3,000 in the new company, provided it was co-operatively owned and run.
The process was greatly assisted by the willingness of the vendors to supply financial information about the company and be willing to accept payment over a number of years. The beginning of any buyout process depends upon willingness to sell, without that no deal can take place. This willingness can not just be assumed to be present.
Planning for the new company took place over a six month period during which a steering committee of the workforce worked with the Co-operative Centre to prepare a business plan. Negotiations took place at the same time with the owners in order to structure a deal which would give them a fair price whilst at the same time allowing the new company sufficient capital to succeed.
Regular meetings were also held with the whole workforce.
The raising of the finance
The workforce were willing to invest £3,000 each (24 employees). This was to be used mainly for working capital. The Wales Co-operative Centre also provided specialist legal advice in preparing the Sale and Purchase Agreement and negotiating with the owners. This is a crucial role in any buy out process where the adviser acts as an intermediary between the owners and the workforce to secure a deal that benefits both parties. The workforce were keen to continue to work in a company they felt would be profitable in the future. The vendors were keen to hive off a section of the company they were no longer interested in, but they were willing to provide on-going support, particularly in the area of customer contact and pricing.
The whole process took over a year to complete as the negotiations with the vendor were quite detailed and complex. The final deal involved the workforce paying a nominal sum for the goodwill, stock and the benefit of the contracts, but paying a larger amount to the owners for the commercial rent on the premises and paying for the plant and machinery under a hire purchase agreement.
This arrangement meant that the owners were satisfied that they received a good price for the part of the company they wished to divest, secured by a leasehold agreement over 5 years, and the workforce took over an existing business with sufficient working capital and a well established customer base.
After the conversion
The company has now been trading for three years, returning an increased profit each year, and has taken on four new apprentices. They have finished paying for the plant and machinery and in two year’s time will be able to renegotiate their lease.
The Wales Co-operative Centre has also helped them to install a Profit Sharing Trust in the past year which will enable all the employees to benefit from the increased profitability with free shares in the company.