Switch to staff ownership not at all hairy for travel agent

A travel agency that sells a third of the 900,000 tickets bought by families heading from Britain to Disney’s theme parks in Florida each year has been acquired by its staff.

Attraction Tickets, which had net revenues of £22 million and pre-tax profits of £6 million last year, was valued at £40 million under the deal.

Oliver Brendon, who founded the London firm 23 years ago, and other shareholders are selling all their shares, with some of the 128-person firm’s longest-serving staff receiving bonuses of more than £50,000 in their payslips this month as a result.

Brendon, 51, said he wanted to put in place an ownership structure that would serve the employees in the long term.

“What are the options? Private equity never really appealed. I have met quite a few of the PE houses over the years and while they talk a good game, they haven’t really been there and done it,” he said.

“And it would have broken my heart for a PE house to have acquired the company with the immediate view of trying to sell it again. They would have no emotional involvement in the business.”

Brendon explained the other options they considered: “A trade sale, being absorbed into a larger group, economies of scale, what does that really mean? We all know that would lead to redundancies.

“We had got a bit big for a management buyout. High net worth individuals? We had talked to quite a few over the years who were interested in taking minority stakes, but it always strikes me with high net worth individuals that they don’t get to be high net worth by sharing prosperity.

“The other option was doing nothing, which we had to consider. But I have been doing this for 23 years and a lot of my fellow directors have been with us a long time as well. I feel like this structure lays the foundation for future change. We needed some event and this seemed like a really good option.”

Brendon said the reaction among employees last week when they were told was “really positive”. They plan to create an active employee forum that over time would have an increasing influence on how the company is run. “People get it. We have explained you don’t own it directly and you don’t have to put up any money, but you will be the beneficiaries over the long term,” Brendon said.

He has worked with a consultancy that specialises in employee ownership, called J Gadd Associates. “They do the softer side of transition to employee ownership. All of the cultural changes,” he said.

The existing shareholders are owed money by the employee ownership trust, but the deal is structured so that there would be sufficient cashflow to service the debt and pay out to the new owners, if trading continues as expected, said Brendon.

“We are on version 37 of the model now,” he said, acknowledging the difficulty of balancing the interests of the current owners with the needs of the business and rewarding employees. “We are leaving lots of cash in the business and a very positive balance sheet as well. I hope we have the balance about right.”

As the 68 per cent majority-owner with his wife, he is being paid back over 11 years. Other minority investors receive payments over five years. An existing employee benefit trust is being paid in full immediately, enabling it to disperse £1.1 million based on length of service, with a few of the 128 employees receiving north of £50,000 and those with the company’s average six years of service landing £3,600, which is tax free. This “completion bonus” will be paid in this month’s payroll, Brendon said.

Employees would then be eligible to share a recurring annual bonus, based on the performance of the business, starting with a £3,600 payment for this financial year. Dividends will also be paid from year one, starting small. “The majority of shareholder debt will be paid off after five years and that is when there is a big increase in the employee benefit. By year six of the model, the pot for dividends is multiple millions,” Brendon said.

He said that while the existing shareholders were selling 100 per cent of their shares, the management of the business would not change for the time being. “We are still trying to sell as many tickets and theme park hotels as possible,” he said.

Employee ownership trusts were established by the coalition government in 2014 to encourage this form of company ownership. A significant benefit for owners considering selling to employee ownership trusts is that there is no capital gains tax due on the increase in value in their shares. The trust has to pay a market rate price.

The Employee Ownership Association said about 2,250 companies covering 316,000 employees are owned by their staff. They range from Aardman, the animation firm, to Richer Sounds, the electrical goods retailer.