Buying/Selling a Company through a Worker Cooperative. Margaret Lund Co-opera Co

Transcription

1 Buying/Selling a Company through a Worker Cooperative Margaret Lund Co-opera Co

2 Worker co-ops in the U.S democratic workplaces in the U.S. 3,500 employees $400+ million in revenue Most are quite small Largest in the U.S. is Cooperative Home Care Associates, Bronx, NY with 2,000 employees, 1,000+ members and $60 million USD in revenue

3 U.S. worker co-ops are... Geographically diverse Operate in many industries and sectors Have many different management styles A small but growing part of the U.S. cooperative scene

4 Worker Cooperatives in the U.S. Service - housecleaning, day labor, restaurants, taxis, childcare Retail - grocery stores, bakeries, bookstores, bike shops Health care - nursing, home health care, clinics, bodywork Skilled trades - printing, plumbing, woodworking, contracting Manufacturing and engineering - machine parts, fabricating Technology - web hosting, networking, voice and data systems Education - charter schools, teacher/student/parent-run schools Media and the arts - designers, galleries, performers, publishers

5 What are the opportunities for conversions? Retiring owners Existing owners who want to share responsibility and reward and sometimes... Irresponsible owners

6 ESOPs vs. Co-ops key differences ESOPs Federally structured Ownership transfer highly regulated ERISA Lots of (paid) TA Ownership but not direct governance ESOP trustee Annual valuation of stock Often staged transfer Relatively expensive for small companies transaction and annual requirements Co-ops State statutes govern Ownership transfer (generally) not heavily regulated Fewer specialized lawyers, accountants Democratic ownership and governance No trustee No valuation of stock required (limited return) 100% ownership ** Not as expensive

7 ESOPs vs. Co-ops key differences ESOPs Stock appreciation at retirement Law determines who is covered Benefit program no financial buy-in No obligation to share any information Can structure so essentially nothing changes Co-ops Annual share of profits Co-op sets membership rules (must be fairly applied) Co-op sets initial stock purchase requirement At least some basic financial information must be shared with members Involves structural changes to relationship between employees

8 Summary of key differences/similarities Differences: Governance rights Structure and context -- specific legal regulations vs. prudent and ethical standards of conduct Fewer templates for co-ops Reliance on stock appreciation vs. share of annual profits 4/9/2015Oct 8, 2010 USFWC/OEOC Co-op Conversion 8

9 Summary of key differences/similarities Similarities Effective ways to transfer ownership Potential to substantially improve engagement and company performance Wonderful legacy to leave 4/9/2015Oct 8, 2010 USFWC/OEOC Co-op Conversion 9

10 What do you need? Willing Buyer Willing Seller Feasible Transaction

11 What does this mean? Willing Buyer Committed, engaged group of people willing to explore issues, stay in the room, take responsibility Willing Seller Patient owner willing to transfer key relationships, help others to lead Feasible Transaction Business does not have to be high wage, but it does need to be reliably profitable, stable

12 Some structural considerations Control one vote per member vs shares Patronage allocation formula (hours, salary, seniority) Probationary period, member investment etc. Selling owner rights (board seats, management, employment contracts etc.) Selling owner stock redemption, financing Pick your most important issues: Culture eats strategy for breakfast..

13 Key questions to ask: For the owner: Do you want to be in or out? Plan accordingly What is the transition timeline? What are you willing to do to facilitate a successful transaction? For the employee group: Do you want to be in? Who else do you want to be in? (set membership criteria: probationary period, member share etc.) What do you need to know more about to be a good steward of the company? 4/9/2015Oct 8, 2010 USFWC/OEOC Co-op Conversion 13

14 Cooperative conversion process Stage 1: Do we have: A willing seller A willing buyer A feasible ongoing business

15 Cooperative conversion process Stage 2: Assessment of the current situation: Feasibility Include financing, management issues Valuation An informed outside perspective is extremely valuable Business Plan What will be the same, what will be different

16 Cooperative conversion process Stage 3: Structuring the project: Funding Legal structure Management succession Offering statement etc. Employee approval Articles, bylaws, governance

17 Sources of financing for worker co-op conversions: Seller financing Banks (partial) Loan funds/other community development financing Individual share loans 4/9/2015Oct 8, 2010 USFWC/OEOC Co-op Conversion 17