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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

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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

Experience of trusts, share & pension plans

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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)

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PSFH Share Position 2003

David Slade 33.3%

Ron Forrest 33.3%

Noble Grossart

33.3%

Share Capital

Authorised £2m

Issued £1.5m

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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

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PSFH Share Position 2011Staff directly held

11% Noble Grossart26%SIP

10%

Share Trust25%

Ronald Forrest15%

David Slade13%

Free float 10%

EMI 15%

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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

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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

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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

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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

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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

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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

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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