Image Creation Limited was formed in 1998 by Andy Kipping and his wife Dorn. The Company is based near Beaconsfield, Bucks and carries out corporate refurbishment projects for clients including O2, Mars, Uxbridge College and West Thames College. It also provides facilities management services for clients and design and manufacture of corporate signage. The company has 14 employees.
In April 2017 Gerry was appointed by the company to evaluate the advantages and disadvantages of an employee buy-out compared to a trade sale of the business. After considering his advice, the Founder Shareholders concluded that their preferred option was to transition to employee ownership through sale of 80% of the Founder shareholdings to an Employee Ownership Trust (“EOT”), with a 20% stake being retained by the Founders.
A financial model was constructed to value the Company, which involved valuing the business on a multiple of its sustainable profits, then adding the Surplus Cash in the business (the cash that was not needed to provide working capital to the ongoing business). The valuation was needed to set an independent price for the business, at which the EOT purchased the 80% shareholding in the Company from the Founder Shareholders.
After valuing the Company, an appropriate earn-out profile was structured. The Founder Shareholders were issued Loan Notes repayable over a 7-year period, funded by the projected profits of the Company, plus 10-year interest bearing Loan Notes repayable at Year 10.
After preparing the valuation, structuring the earn-out and drafting Heads of Terms (which set out the key legal terms of the transaction), RVE submitted the Transaction for HMRC clearance. Clearance was received from HMRC within three weeks.
Gerry also advised on the appointment of Trustees to the EOT and was subsequently invited and agreed to act as Chairman of the EOT.
The transaction completed in September 2017. The deal value has not been publicly disclosed.
Since the deal was completed, the business has performed ahead of its business plan, and has recruited new staff to service its increased workload. The Earn Out is being paid down ahead of schedule and employees have benefitted from tax free bonuses (up to a maximum of £3,600 per employee) paid by the Company in both December 2017 and December 2018.
“After many years of hard work building up my business, in 2016 I had an approach from a trade buyer who was interested in buying the company. I was still in my mid-40s and didn’t want to retire, and after a few meetings with the buyer realised that the company would not thrive under changed ownership. However, I was keen to realise a fair value for my shares if this could be combined with a continuing role in the business. The employee buy-out fitted my objectives perfectly – me and Dorn sold 80% of our shares to the EOT (tax free) and retained 20% for future sale, and I will continue to work actively in the business until my planned retirement in a few years’ time. Gerry Young at RVE did a great job advising me on the transaction and I would be happy to recommend him to other business owners in a similar situation”.