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1
The Employee Share Ownership Centre and Institute of Directors
Employee Share Schemes for SMEs Conference
Case Study
Perkins Slade Forrest Holdings Ltd
15th May 2012
2
Perkins Slade Ltd – Case Study
PSFH Objectives
Buy out retiring Directors
Remain independent
Encourage wide employee share ownership
QUESTION - How to achieve objectives?
(Enter Alan Judes as Bacon & Woodrow!)
Ron Forrest Background
Ron
Alexander & Alexander Services (A&A)1988 - 1993
Bain Clarkson, Bain Hogg, Inchcape1993 - 1996
IPO of Bain Hogg aborted and business sold to Aon 1996
Aon merged with A&AReturned to run integration 1999
Perkins Slade 2003
2006
2010
3
5
Perkins Slade Ltd – Share Plan Case Study
Background
Company founded in 1970 by David Slade Current turnover c£5m brokerage
£35m premium placements Employee numbers 90 Special niche in Sports insurance (40% T/O) In 2002 Company contemplated sale on retirement of three Director
Shareholders (70% equity) New holding company formed – Perkins Slade Forrest Holdings Ltd) PSFH bought 100% of PSL equity Consideration £3.4m Financed by: Issued and paid up capital £1.5m
Loans £1.9m
(Slade £1m, NG £700k, Forrest £200k)
6
PSFH Share Position 2003
David Slade 33.3%
Ron Forrest 33.3%
Noble Grossart
33.3%
Share Capital
Authorised £2m
Issued £1.5m
7
Perkins Slade Ltd – Case Study
PSFH Objectives
Buy out retiring Directors
Remain independent
Encourage wide employee share ownership
QUESTION - How to achieve objectives?
(Enter Alan Judes as Bacon & Woodrow!)
8
Perkins Slade Ltd – Case Study
Advice given
- Form two Share Trusts
Employee Share Trust
- Purchase shares from Slade and Forrest over time
- Vehicle for granting share options to Directors/Managers
(via Enterprise Management Incentive Scheme – EMI)
SIP (Share Incentive Plan)
- SAYE monthly plan for all employees
(Both enabling shares to be acquired in most tax advantageous manner)
Institute an internal share market mechanism
9
PSFH Share Position 2011Staff directly held
11% Noble Grossart26%SIP
10%
Share Trust25%
Ronald Forrest15%
David Slade13%
Free float 10%
EMI 15%
10
Employees as owners Share Trust
25 Individuals/Directors
15% granted as options
(- 4 year life
- 2 years to invest
- no performance criteria)
10% in reserve
SIP
35 Individual Employees
Directly Held
13 Directors/Employees
Total number of employees as owners = 45
11
PSFH Share Position 2011
£1.30
£1.30
£1.60
£2.00
£1£1.15
£1.37
£1.60
£1.30
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2003 2004 2005 2006 2007 2008 2009 2010
Share Price
Pri
ce
Takeover bid @ £5+
2011
12
Perkins Slade LimitedShare Valuation Formula
Value: ((A+B)/2+C) – Dx((A+B)/2+C
Definitions:
A Turnover excluding commissions rebated to third parties, but including earned interest
B Profit before tax and amortisation of goodwill x 5 (profit should also exclude non recurring one off gains or losses
C Net tangible assets of the group
D 25% discount for “absence of market” (per HMRC)
One off items are added back in arriving at the appropriate pre-tax profit,
but clearly impact on the net assets
13
Portfolio growth – 2003 to date
160
160
160
179
539
100
187260
322385
462
86
115
139
0
100
200
300
400
500
600
700
800
2004 2005 2006 2007 2008 2009 2010
Totalportfolio
Totalportfolio
Totalportfolio
Totalportfolio
Totalportfolio
Totalportfolio
Totalportfolio
Nu
mb
er
of
sh
are
s
0
200
400
600
800
1000
1200
Va
lue
of
sh
are
s -
£
Partnership Shares Matching Shares
Investment (net) Investment value
14
SIP Investment cost -v- value
0
20
40
60
80
100
120
140
160
180
200
2004 2005 2006 2007 2008 2009 2010
Nu
mb
er
of
sh
are
s p
er
£1
00
0
20
40
60
80
100
120
140
160
180
200
Va
lue
s -
£
Partnership Shares Matching Shares
Investment (net) Investment value
15
Staff investor numbers to date
29 29 31 27 25 29 27
10 109
-7
25
2930
3642 42
3832
-
10
20
30
40
50
60
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
SIP year
Sha
res
'000
'
051015202530354045
Sta
ff n
umbe
rs
Number of shares acquired Number of matching shares
Number of employees participating
16
Perkins Slade LtdLessons
Employee Ownership has some business benefits (loyalty, commitment, involvement)
Equity ownership doesn’t guarantee commitment to independence (if the price is right!)
Useful tools in ownership transfer
Need for clear exit strategy for minority outside investors
Overall mark 7½ / 10