Having just completed his second PE backed buyout, Carl Shuker of A Plan Insurance gives some insights on the use of equity incentivisation amongst the management and wider employee base.
Carl Shuker is the CEO of A-Plan Insurance, a leading independent high street insurance broker which provides products from a wide range of insurers, including SME commercial, motor and home, and high net worth insurance. Founded in 1963, Oxfordshire based A-Plan currently operates 73 branches nationwide, and serves nearly 600,000 policyholders.
Carl led the business through its original buyout from the private founders in 2008 in a deal backed by Equistone PE and most recently has completed a secondary buyout with backing from HgCapital following a competitive auction process at the end of 2014.
A key component of both transactions has been the use of equity incentivisation amongst the management and wider employee base, with clear communication to ensure the holders of equity understand the opportunity this represents and the alignment with their individual performance and goals.
1) On the initial Equistone buyout, why did you decide to distribute equity more widely?
There were approximately 40 managers included in the Equistone buyout. We felt that it was important that those who were going to help drive future value should participate in the benefit – as indeed they have following our secondary buyout.
2) How did you approach the process of educating the wider managers and employees on the benefits of being an owner and creating an “equity culture” within the business?
The equity was tightly held prior to the Equistone MBO, and there was a process of getting people to realise that their equity had the potential to be very worthwhile.
Prior to the MBO, managers’ used to think quite parochially, but ‘best practice’ workshops, regular manager meetings where we reminded them to think more broadly and as shareholders all helped create that sense of common ownership.
3) What were the key concerns/questions new potential equity holders had?
For most, it was how real was the potential for value. Beyond that, it was what happens to value if I can’t work through ill health or worse. We have very clear leaver provisions – if you leave, you leave your value behind for the benefit of other manager shareholders (unless through ill health or death, but the Remuneration Committee can decide on exceptional circumstances.
4) The business has enjoyed excellent performance, how do you keep equity holders informed of the value of their equity and how do you protect the business from the risk of losing key people?
We had an initial ‘launch’ and then on an annual basis we held shareholder meetings which were run by our advisors who gave a view on the businesses performance and the likely share price today and in two/three years’ time based on current performance.
5) As part of the recent secondary buyout the equity ownership in the business has been widened considerably, how do you see that communication and protection process changing in the future?
Much as before. The success of the original buyout has made the new shareholders much more aware of the potential of equity ownership. We have a number of managers who will be able to participate in equity once they’ve reached a performance threshold - and that prospect is motivating for them too.
6) Generally how have you found the PE ownership experience, and has it changed the culture and outlook of the business and management over the last few years?
The experience has been good. Equistone have been very supportive, and they’ve bought a different perspective and new disciplines to the Board. The client philosophy and service values that makes us what we are though has changed very little - if anything we’re more ‘self aware’ and better at communicating those values.
7) Looking back on the two buyouts you have led, is there anything you would have approached differently?
Not really –but you have to remember that as you go into a process, you don’t know what you don’t know, so good advice is essential.
8) Finally, what key tips would you have for management when considering wider equity distribution in a PE backed business or process?
We have found it to be extremely valuable to our business. The key is having very simple good leaver provisions (for us, illness or worse!) for managers, and making it clear that equity is part of their long term wealth creation plan. We made it very clear in 2008 that managers would have to roll over half of their gain into the next investment cycle, and that the same leaver rules applied. It’s been a great value driver and retention tool.
We had a couple of managers drop off on the journey – by using the discretion of RemCom, we were able to use the shares as a very effective tool in managing those exits in a very trouble-free way.
Telling the managers the share price after exchange was a moment I will remember for a very long time, and the impetus and energy that success has given the business is immeasurable.