NC Squared EOT Sale, Cloud Software (2020)
How RVE advised on the cloud software EOT sale of NC Squared completed in 2020, with the corporate finance, tax, legal and trustee work delivered as one engagement.
Deal Facts
RVE were really good, it all went very smoothly. They are a ‘safe pair of hands’, a very experienced and intelligent team and a nice bunch to work with. Took everything seriously without taking themselves too seriously which is always a good thing!
The story of the deal
NC Squared, cloud software, completed an Employee Ownership Trust (EOT) sale advised by RVE in 2020.
November 2020
It was early last year that we started thinking about it seriously. We’d had a couple of approaches about buying NC Squared which prompted conversations about what we would eventually do with the company. This was coupled with ongoing conversations we’d had over the years about how we would connect employees with the success of the business (share options / profit share etc).
An article in the Guardian about Richer Sounds in 2019 prompted us to look at EO. We’d never heard of it before. That prompted us to join the Employee Ownership Association (EOA).
We attended a few EOA meetings, talked with lots of people. Standing around making small talk over a vol-au-vent isn’t usually our idea of a good time, but it was actually very useful. The EO community seems to be a very honest and helpful bunch of people.
The usual suspects: trade sale, private equity sales, and of course the option of doing nothing and ‘kicking the decision down the road’.
We’d been really careful about who we hired, and we’d been careful to create a nice lifestyle kind of culture. Acquisition or having Private Equity take over would have dramatically changed the company and put the kibosh on the team’s work just as they were getting into their stride.
It’s easy enough to be an EO company. It’s quite hard to be a good EO company! Takes work to “make it real” after the transaction, to really find that balance between giving a voice to employees while also trusting your own judgement about steering the company in the best direction. We’re a small company, around 20 people, and we had little formal leadership structure in place, so EO was a catalyst for us to get more organised. We’ve been working with J Gadd Associates to help with that.
We’re really happy with the decision. No regrets. It’s great to be able to sell the business without bringing in external influencers with their own agendas. It’s important not to over-hype the roll-out to the team. EO is what you make of it and it takes time for the team to see real changes and benefits.
Not a huge amount. Maybe we could have done some of the organisation structure changes before going EO.
Looks good. Obviously we’re in uncertain times but it’s given us something to focus on, and getting this transaction done while things are quieter with customers has been helpful. Feels like we’re creating a strong ship, getting everything ready for when the wind picks up again.
We’re still directors of the business. Learning (slowly) how to meddle a little less and hand over the reins to the team a little more. So we’ll get everything settled – we’ve given ourselves a year to complete the transition properly and then see how things look on the other side of that.
RVE were really good, all went smoothly. They are a ‘safe pair of hands’, a very experienced and intelligent team and a nice bunch to work with. Took everything seriously without taking themselves too seriously, which is always a good thing!
Related case studies
Case Study - common questions.
Yes. Most founders / controlling shareholders stay on as director (and often as chair or CEO) for between 1-5 years post-completion, then transition to a part-time non-executive or consultancy role. You agree your role and time commitment with the trustee board; there is no requirement to exit operationally. Many founders find the post-EOT phase the most rewarding part of their career, with a clear financial exit having been arranged and a plan for management succession in place.
EOA research consistently shows employee-owned businesses outperform privately-held peers on productivity, profitability and employee engagement. RVE founders consistently report that their businesses perform ahead of plan post-completion, with vendor loans paid down ahead of schedule. The cultural alignment and engagement boost typically delivers measurable productivity gains within the first 12 to 24 months of EO. Growth depends on the business; the EOT structure does not constrain it.
The deferred consideration due to the vendors is repayable from future company profits, typically over a 5-8 year period. So if the business genuinely struggles, the term of the loan note may need to be extended by 2-3 years. In extreme circumstances, some of the vendor loan may need to be written off (eg if the business were to become insolvent).
The vendors do therefore retain business risk relating to the ultimate payment of the sale consideration under the EOT model.
If the business outperforms the original projections however, the vendor loan can be accelerated, and some vendors have been paid out in full within 4 years.
We are happy to talk over Teams or meet to discuss your exit planning.
We can normally assess whether an EOT transaction will be viable and the likely valuation range at our first meeting.
For accountants, lawyers, and wealth managers
Are you working with a client who should be considering a sale of their business to an EOT? We will complement the work you do to deliver an optimal outcome for your client.