Ensuring a Smooth Transition
Successful succession planning by implementing an EMI scheme.
After successfully running their business for many years, our client made the challenging decision to step back and sell their company.
Like so many passionate business owners, they understood the value they brought to the organisation's daily operations. Consequently, they came to the realisation that dedicating 2-3 years to empower their management team, equipping them with the skills necessary to make critical business decisions, was of importance before taking the step back. The retention of key management became the linchpin of this transformative process.
As a business owner, learning to let go is incredibly challenging, but worthwhile in the end. Based on our client’s unique situation, we identified 3 key challenges:
To incentivise the managers and align their interests with the company's growth, we implemented an Enterprise Management Incentive Scheme (EMI). This scheme allowed us to grant share options to the managers at a discounted price, giving them a stake in the business's future success. By doing so, we ensured that the managers would actively contribute to driving the company's growth and a share in the financial rewards upon its sale.
Setting up an EMI scheme required careful consideration of the shareholders' agreement and obtaining investor consent. In our case, all necessary provisions were met, allowing us to successfully establish the EMI scheme. During this transition, the owner retained their controlling share in the company, while the managers received the opportunity to enhance their skills and decision-making abilities.
The owner-manager wisely chose not to distribute the shares too early, ensuring that they retain control of those options until they are actually exercised. To facilitate the distribution of options/shares to the management team, performance criteria was established. This approach not only helps manage the process effectively but also motivates the management team, as they are actively involved in decision-making and are fully invested in the process. Moreover, the management team directly reap the rewards of growing the business, as their long-term benefits are directly tied to its success.
