American-style diner restaurant chain safeguards its employees by becoming employee owned
When John and Maxine Murphy started to plan their exit from the successful American-style diner restaurant chain Arbuckles, which they had founded in 2008, they knew the Norfolk and Cambridgeshire roadside sites would be snapped up by big chain restaurants such as McDonalds or Burger King. But they also knew that they would not rest easily knowing that most of the 120 employees whom they had come to treat as extended family would probably be made redundant.
When John heard from RM2 about the Employee Ownership Trust (EOT) model it seemed to solve his dilemma. He and Maxine would be able to sell at fair market value and keep the business independent for the long-term benefit of the employees. Meanwhile, employees would benefit from tax-free bonuses and have an input, through the trustees of the EOT, in how the business is run and developed.
Arbuckles appointed RM2 to arrange the EOT change-of-ownership, from feasibility analysis to sourcing finance and legal documentation. RM2 raised third party finance to prime the £7.5 million deal, giving the founders a welcome tax-free lump sum, with the balance of the £7.5 million paid in tax-free instalments of vendor loan repayment over the subsequent five years. This is a standard technique: some cash upfront but the rest paid on deferred terms that rank behind any bank loan repayments. Banks like EOTs because vendors still have “skin in the game”.
John Murphy said: “When people ask us what is the secret of our success, the first answer is always the people. Everyone we’ve employed, from 12 to more than 120 over the years, they are the family, they are everything we stand for. This is our way of saying to the staff: ‘You’ve stuck with us, you’ve been fabulous employees, now this is your little bit of luck.”
John is now enthusiastically promoting the EOT model to other business owners in the region.