TTP Group EOT Sale, the Largest UK EOT Transaction at £275m (2021)
Deal Facts
The story of the deal
Statistics compiled for the Employee Ownership Association (“EOA”) show that, since the changes introduced in the 2014 Budget made it easier to convert a business to employee ownership through use of a John Lewis style trust structure, over 600 UK companies have chosen this path.
This includes well-known companies such as Aardman Animations, Riverford Organics, Richer Sounds and most recently Go Ape (October 2021).
Although you may not have heard about it in the press, the largest EOT transaction by value to have taken place involved the TTP Group, which converted to an EOT structure in August 2021.
TTP is an independent technology company whose scientists, engineers and designers collaborate to invent and develop new products and technologies. As well as providing consultancy services to corporate and government clients, TTP forms start-up companies to incubate new products and technologies prior to spin off from the Group. The business was formed in 1987 and now employs over 300 people at its science park campus near Cambridge, with many more ex-employees working in the start-up companies that have been spun off.
Employee ownership has always been at the heart of TTP, and for the early years of the Company’s life it was owned and controlled by the people who worked in the business. Indeed, TTP has been an active member of the EOA for many years.
However, over time, as the business grew and employees moved with spin-offs, left or retired, but held on to their shareholdings, the proportion of the Company’s shares held by current employees started to fall, and by 2019 the Company was only 27% directly owned by its current employees.
In late 2019 the Chairman of TTP (Dr Peter Taylor) attended an EOA seminar where he met Gerry Young and Mark Butler from RVE Corporate Finance (“RVE”). He discussed with RVE whether there was a solution which could return TTP (a public company subject to the Takeover Code, with three classes of shares and over 900 shareholders) to its core mission of being a Company owned by the people who were working in the business.
In 2020 RVE was appointed by TTP to advise on the feasibility of moving the Company back to full employee ownership. The Company wanted to know whether an exit at a fair value could be achieved for its current shareholders (comprising mainly of ex-employees) whilst also creating a new sustainable ownership structure that would always have the Company’s employees owning the business.
After a detailed review process, which involved an independent valuation of the business, construction of a long-term funding model, a tax and legal review carried out with the law firm Fieldfisher, and discussions with the UK Takeover Panel, the Company, advised by RVE and Fieldfisher, decided to establish an Employee Ownership Trust (“EOT”) which made an offer to all shareholders in July 2021 valuing the Company at £276 million (“the Offer”).
The Offer was structured so that shareholders achieved fair value for their shares in the form of cash payable at completion, deferred consideration payable over a 5-8 year period and contingent consideration based on the value obtained from disposal of a number of TTP’s subsidiaries established to develop new technologies.
The Offer completed in August 2021 and the EOT now holds all of the shares in the Company on behalf of the employees, creating a “partnership” structure through which all employees can participate in the benefits and share the responsibilities of ownership.
The transaction is the largest EOT conversion by value to have taken place since 2014 and was also one of the most complex to execute, and we believe it can act as a blueprint for companies in a similar position that wish to embed employee ownership and independence into their corporate structure.
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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.
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