• July 30, 2024

Agency leaders on the benefits of becoming an EOT

Agency leaders on the benefits of becoming an EOT

Agency leaders on the benefits of becoming an EOT 1024 683 micebook.

The recent flurry of acquisitions in the event industry has probably left some agency owners pondering their future. No matter how far away it is, there will eventually come a point when they want to take a step back or retire, meaning a succession plan or exit strategy is necessary.

Acquisitions are one way, as are management buyouts. Employee Ownership Trusts (EOTs) are also a great option to consider, offering multiple benefits for both business owners and employees. EOTs give owners the opportunity to sell their shares to an employee-owned trust free from capital gains tax. Rather than direct share ownership by employees, a controlling interest in the company is transferred to an all-employee trust which is then held for the benefit of employees.

The last couple of years has seen several well-known agencies become employee-owned trusts – First Event, AOK Events and Sledge. So, we caught up with their owners to find out why and how they did it, and what it means for their teams and businesses….

Alex Hewitt, AOK Events

After the craziness of Covid, we had an unbelievably busy and profitable year in 2022, so I suggested to my senior team at the offsite that I find a vehicle that would give them a bit of skin in the game. They were all interested, so over the course of the next few months, I looked at EMI schemes, growth shares and gifting equity, but couldn’t really find an option that achieved what I wanted. Then I stumbled on EOT schemes while doing some research online, and the more I found out about them, the more I liked.

The first thing that piqued my interest was the valuation. With an EOT, the business is valued at what you think the company might be worth in five years’ time, rather than what it is worth now. When I have had my company valued in the past, it has never been valued at an amount I would consider selling at. But by basing it on a valuation in the future and forecasting some modest growth over the next few years – you need to be reasonably practical about these valuations otherwise HMRC won’t sign them off – suddenly the valuation was exciting. That was a big tick to press the green light.

The next thing is that there are very few tax breaks available for entrepreneurs anymore, but an EOT allows owners to take money out of their businesses tax free, with the tax liability transferring onto the company. That was another big tick for my shareholders and me. Thirdly, AOK events effectively have 5 years to pay the shareholders back the sum that was agreed and signed off by HMRC. It comes out of net profit and any funds you’ve got on your balance sheet, and at the end of it, 65% of AOK events will be owned by the employees without them having to put any of their own money into the company.

An EOT is available to any employee at AOK Events so long as they have been at the company for over a year, and their share of any potential profits is based on seniority and length of service. So, in terms of a model for rewarding both my SLT and employees that have been with us for 10 years or more, it was a great vehicle to do that. It’s also proved to be an attractive incentive when recruiting new talent.

It ended up taking us about 10 months to get the EOT through and during that time, I made sure to communicate everything about that journey as clearly as I could to my staff so that they knew exactly what it was that they were getting into and how it would positively affect them. We have appointed some EOT counsellors who represent all the staff and like any company you have board meetings and make decisions as best you can on behalf of the trust and the company.

We have worked hard to develop a strong culture at AOK Events and ranked 19th best company to work for in the UK this year for a company under 50 employees. That’s why my shareholders and I made a conscious decision back in 2022 that we didn’t want to sell to a bigger company that we didn’t know.

Another positive is the five-year timeframe is a nice long amount of time to allow for succession planning. I can train up those people from heads of department to become senior leaders and directors, and slowly step back, which gives people in the business a clear career development journey. Being an EOT means that everyone in the company is incentivised to work hard, deliver revenue and profit, organise the best events that they can, and they’ve got one eye on the long term, because they know if this were to continue, that they would benefit.

We often talk about career development and where people want to be in three- or five-years’ time. But this has really ramped those conversations up with our staff by a few degrees because they now realise that if they are still here and the company is still profitable, their share could be worth a decent amount of money. I want everyone to benefit as much as they possibly can. Even a relatively young person could pick up enough money to put down a deposit on a house and its hard to do that these days. That would give me enormous satisfaction and pride.

Richard Murphy, First Event

I have always tried to run First Event like an employee-owned business and been very open and involved our people in the decision-making process. We have monthly meetings where we discuss profits, who we’re thinking of recruiting and what direction we’re planning to go, so becoming an EOT hasn’t been a massive shift for us as an agency.

That was partly the reason we decided to become an EOT, because it wasn’t a big step. I didn’t want to sell the business to a big international agency, because I didn’t want the culture and everything we have worked hard to change significantly. I felt like I had a responsibility to the 60+ people working here and our loyal clients to keep a bit of continuity. I also love the idea that when I eventually get paid out, the company is still running without me and everyone gets a share of the profit. It encourages collective responsibility and helps drive momentum.Now we have a great flat structure where everybody gets £3,600 tax free EOT bonus every year regardless of whether they are an account executive or a senior manager.

We created an employee council when we became an EOT, which is now in its third year, and we are constantly learning and evolving. Everyone can feedback to the council, which changes each year, and they act as the voice of the employee and make recommendations for changes we can make as a business. This includes things like mental health day, real living wage increases, pension increases, charity days off, blood donation drive, which are among the changes they have implemented so far.

The way I see it, the SLT and I are now employed by the employees to deliver. I feel more of a responsibility to make decisions with everyone else in mind, particularly commercial decisions, so I think it’s made decision making a much more collaborative process. We were all in it together before we became an EOT, but this has given our employees more of a voice. They had one anyway, but I think this has legitimised it and given them an official platform through the employee council. The first year we became employee owned, we were ranked in the Sunday Times Best Company to Work For, which was amazing and a great achievement.

In terms of how it all worked, I was the sole shareholder and sold 100% of the shares in the company to the trust. In a nutshell, you write to HMRC with a suggestion of what you think the value is, and they come back and confirm it’s okay, and then it’s down to the trust to pay that value back over a certain period as the company can afford it.

Once I am paid out, the company is owned by the EOT, and everyone in the business (once they have worked there for three months) joins the trust and will benefit from any profits the business makes.

For anyone who wants to exit without selling to another business, it’s a great way of doing it, and from my point of view it works from a tax perspective. It’s good from a recruitment point of view as it’s a real incentive for people to join us. It’s also great for retention, as people know they are going to get a bonus at the end of the year, they are more likely to stay longer. I would 100% recommend going down this avenue – I don’t think there are any downsides.

Sarah Yeats, Sledge

At Sledge, our people are our core, and our culture is at the heart of everything we do. So, when we were future planning for the business, it was important to find something that would incorporate our values and who we are.

We heard about the EOT set up and the more we investigated it, the more we discovered that it puts a label on everything we are and everything we stand for as a business. So, there was no massive change when we were announced that we were now an EOT, it was business as usual. But what it does do, is it gives you that clarity on direction. We now always consider: is this decision in the interests of our people, have we talked to everyone about it, is this where we want to go, do we believe in it?

We are a very flat hierarchy, and we don’t dictate how it’s done. It’s an alternative business structure that gives everyone coming into the business an opportunity to be involved in the strategy and work on the business as well as in the business. You don’t have to be in a senior role to be part of the decision making

We have set up a trust who are the ultimate decision makers. In terms of strategic direction, we have our cross agency steering committee, who are senior leaders within the business that look at the strategy and the vision and how we are going to drive that forward as a whole, which gets fed into agency squads, which is the wider company committee and they get to decide what actions are taken in order to deliver on that strategy and how they can do that within their roles. And vice versa, the squads feed into the cross agency steering committee, so its full circle and there is accountability on all levels.

As a result, we have a much more engaged and empowered team and are thinking a bit more collaboratively, which is coming across in our client work as well. It has made us more visibly open as a business and that that transparency is reassuring and provides an extra level of security for our employees. I also feel more supported as a leader. It can be quite a lonely position at the top in an MD role and everyone looks to you for the answers. But as an EOT, you have the confidence in knowing that everyone has been part of the decision-making process.

It’s not complicated to put into place, but you need the right people advising you from a legal and financial perspective. You also need to really know who and what you are as a business to make sure it is the right thing to do. You can’t just say it, you must live it. That is where you will get the success from being an EOT.

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