Target Components to become employee-owned business to protect its staff from takeover approaches

MD Paul Cubbage to move to non-exec role as Target aims to becomes majority owned by its staff

UK distributor Target Components has laid out plans to become an employee-owned business in a move to protect its staff from potential takeover approaches.

The West Yorkshire-based firm plans to adopt an Employee Ownership Trust (EOT) model which will see its 70 employees become majority owners of the business.

Target's existing shareholders - MD Paul Cubbage and owner Ian Prescott - will each retain a 10 per cent minority stake in the new ownership structure.

Employee-owned business deliver around four per cent of the UK's GDP annually, claims the Employee Ownership Association, which says that employee-owned businesses achieve higher productivity and greater levels of innovation.

The EOT scheme was launched by the government in 2014 to encourage employee ownership in the UK, following a study in 2012 into the benefits of employee-owned businesses.

As part of the change, Cubbage will step down from the day-to-day operations of the company and move to a non-executive director position. Target will begin the search for a new MD to lead the business.

Cubbage told CRN that an EOT will protect its employees from the potential impact of a takeover approach, claiming that the distributor's high growth rates have made it an "increasingly attractive acquisition prospect".

The MD added that Target's stakeholders would've got more for the business, and a larger sum up-front, if they sold the business externally, but ultimately decided an EOT was best for its staff and the future of its customer relationships.

"Once you start to think about the culture of the business and what that means to our employees and our customers - of course all of that gets ripped to pieces because whoever takes over would do whatever they want to do with the business."

"If we were to put it on the market, we'd have that lengthy process of people rooting through our books and doing all the due diligence and keeping that secret. And of course in a sale process you would largely be doing it behind the back of your own staff, so you're sneaking around in the shadows trying to do something that's good for you but not good for the people who're in the business.

"The EOT allows us to step aside in good conscience which was a big part in the thinking behind it."

EOT businesses can only be sold if it's in the best interests of employees, and, if a sale goes ahead, the staff will all get a share of the deal, Cubbage explained.

"Fundamentally it protects the job security of our people who've helped us get here, the culture and ethos of the business, and our relationships with our customers and partners against the potential impact of takeover," he said.

Another benefit is that annual profit share, which is 10 per cent of pre-tax profits, will in future be income tax free under EOT rules, Target claims.

Target has been growing at a rate of knots over the last few years, with revenues reaching £40m in 2020 and the firm projecting $50m for its fiscal 2021.

Despite the fast growth, Cubbage said now is the perfect time to get a new MD on board.

"A whole host of opportunities have opened to us now that weren't there two or three years ago, and that needs that energy in the leadership to take advantage of those opportunities," he said.

The MD will begin scaling back his responsibilities over the next 12 months, he told CRN, and will focus on recruiting a replacement.

Cubbage will retain a board position and will still be involved in shaping the "big-picture" strategy of the company.

He said that experience in the channel is a "definite advantage" for any potential candidates for the role, but said he wouldn't rule out candidates outside of the industry.

"Historically I've been fairly open minded for senior hires about whether they come directly from the channel or not. But with this role, there are a lot of opportunities from day one that we want to start progressing," he said.

"Being MD of Target has always been a fantastic role and a privilege, but with our growth in recent years and the new opportunities that's opened up, there's never been a more exciting time to join us. This is a brilliant opportunity for someone with the right experience, skillset, drive and ambition, and I'd urge anyone interested to throw their hat in the ring and get in touch."