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Steps in a Worker Buyout of a Company

(1) Educate the supporters of the buyout.

Supporters may include all of the hourly and salaried employees as well as local management. Frequently, in situations involving an organized workforce, those employees protected by a union contract are the initial proponents.

(2) Establish a buyout association.

Membership in the buyout association is usually open to all the potential future employee-owners. A leadership team is usually selected to put the buyout together on behalf of the buyout association. Through its leadership, the buyout association:
a) Raises funds from members and solicits matching funds from government and other potential contributors; b) Contracts with and oversees the work of legal and financial consultants, and c) Develops a management team.

(3) Do a pre-feasibility assessment.

This assessment is a quick study by the development consultants of the key factors needed for the buyout to succeed.

(4) Conduct a feasibility study.

A professionally done feasibility study provides an in-depth analysis of the economic viability of the plant as an employee-owned co-operative.
If the feasibility study shows that there is no feasible way for an employee-owned succeed, then the buyout association should cease pursuing the buyout.
If there are any feasible ways for an employee-owned co-operative to succeed, they should be identified in the feasibility study. The buyout association should select the most acceptable alternative. At this point the buyout association has most of the information it needs to complete the following steps.

(5) Develop a Business Plan.

If the buyout association proceeds beyond the feasibility study, it is because the study has explained how an employee-owned co-operative can succeed. This explanation with a little packaging thrown in is the business plan which the buyout association will take to potential lenders and investors. The business plan explains how the new co-operative will generate the money to replay the bank and reward the investors.

(6) Negotiate the purchase and create the structure for the new employee-owned co-operative.

The feasibility study should provide the buyout association with a reasonable estimate of the company’s value as well as how much debt the new co-op will be able to support.
The buyout association incorporates the worker co-operative with input from all employees, and develops a governance structure for the employee-owned co-operative which will encourage all of the employee owners to contribute constructively to their co-operative’s future success.

(7) Arrange financing.

A feasibility study should identify the capital expenditures and working capital needs of the co-operative and these should be taken into account when arranging financing in a addition to the agreed upon purchase price. The financing may include equity or subordinate debt, senior debt, and working capital financing. Generally this requires professional assistance by your lawyer, business analyst or outside financial consultant.

(8) Close the deal with the seller.

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Costs

The initial assessment of the viability of a worker buyout in any given case will be in the range of $7,500 – $10,000.  This would include travel costs to an initial series of meetings for up to two resource people, and fees for their services through the pre-feasibility step.  If the conditions for a buyout are favourable based on the initial assessment, the union would then receive a project plan for future steps.  Additional costs, if the union decided to pursue the project, would vary based on the scale of the buyout. It would be up to the union to decide whether to carry out the initial assessment through the pre-feasibility stage, and then to decide whether further steps are warranted based on the results of the pre-feasibility study.

For More Information

You can get more information on the steps in a buyout at the following page, from which this was adapted: Steps in a Buyout. However, please note that this link will be within the US legislative and policy framework.  Some concepts such as “Employee Stock Ownership Plans” or “ESOP’s” will not be as relevant in Canada.