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Succession planning: John McAslan’s hybrid, affordable solution

Words:
John McAslan

What to do about succession – sell, merge, MBO? John McAslan came up with Widened Share Ownership, a hybrid that affordably makes shareholders of the most senior staff

The 15 new owners of John McAslan & Partners include directors, associate directors and associates.
The 15 new owners of John McAslan & Partners include directors, associate directors and associates. Credit: Robert Clayton

Architecture practices tend to start small and grow into SMEs, with management structures that develop as needs be. At a certain point, a founding partner invariably starts to think about succession. What are the options? Sell, merge, embark on some form of management buy-out or become an Employee Ownership Trust, or just let things run down?

I started to look seriously at the future of John McAslan & Partners a few years ago, when an MBO or EOT seemed the most likely route. Having taken advice, one overriding issue was the relatively high value of the practice at the time, which would have made it unaffordable for the existing team to buy into without saddling the business with too much debt. And while my two partners at the time were intending to retire from the practice, my ambition was quite the opposite, namely to establish a refreshed practice for the future. 

So I began to think about a hybrid model which would retain, reward and attract the best people to take the practice forward with me and one which would fit our social ethos. I came up with a model I called a WSO – Widened Share Ownership. The key was that it should be affordable, for both staff and the business. In a way, the opportunity presented itself a couple of years ago, just after the Covid pandemic, by which time the value of the business had somewhat reduced as our workload dropped off following a series of project completions. 

We established a new company with 15 of the most senior people as shareholders, including myself, who bought in at virtually no cost

So, after much thought about the way forward, we established a new company in the spring of this year with 15 of the most senior people as shareholders, including myself, who bought in at virtually no cost. This new company has bought the practice from me, although I will retain just under 25% shareholding. The business will pay me back in an affordable way over number of years from future cashflows, without incurring debt. Putting this all together took time but was relatively painless.  We got our approvals from HMRC, although it’s important to note that, unlike an EOT, which incurs no tax, the outgoing shareholders will, with this ownership model, pay 20% tax.   

Before announcing the new structure we spoke to all of our 55 team members in London, New York, Belfast, Edinburgh and Sydney, and explained that, in the new practice, everyone will benefit from our new discretionary bonus scheme. With major projects at Penn Station NYC, Belfast Grand Central, BM_Arc for the British Museum, and the Sloane Street green corridor in London, we’ve just reported a good year with a net profit of just over £1.3 million on a turnover of £10.5 million, so everyone will be rewarded for their efforts. 

In the future, I imagine, more of the team might like to consider becoming owners, and even as the new business accrues value, we will keep this affordable through various mechanisms such as granting share options. Retiring shareholders will, hopefully, be rewarded with a substantial payout when they leave the practice which, in architecture, seldom brings great financial returns. Sharing the rewards is important to me; at the risk of sounding schmaltzy, I think that’s the way the world should work. 

 

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