Special Report - Case Study: Contract Scotland

DeeDee Doke looks at the MBO on behalf of the buyers

Doing an management buy-out is not something many buyers gain much experience in. How often can you buy out the company you work for? Therefore, few people experience more than one.

But the journey through an MBO can be prepared for, as happened at Contract Scotland, where the trio of long-term employees who bought out owner Colin Woodward’s shares of the company had spent years readying themselves for the event, under Woodward’s guidance and tutelage. (Woodward, now living in England, holds a non-paid advisory role.)

“Colin’s succession has been on our agenda for maybe as many as 10 years,” says John-Paul (JP) Toner (pictured, above), who along with fellow directors Julie Fleming and Alan Shave joined Contract Scotland, now 30 years old, as graduate trainees. “It has been a long time in the making, and those who have played a part in it have served very worthwhile apprenticeships.

“And what I think Colin was keen to do was,” Toner explains, “make sure that at the time it happened, people were actually ready to step into roles… and be able to do those roles rather than do it [the MBO] in a hurry, with everyone coming to the table too quickly.

“So, he was very methodical over the years, ensuring that the right people were in the right places to take the business forward… It was ensuring his life’s work was handed over to a group of people who can continue that life’s work, along similar lines, similar values and ethics, without compromising the core of the business that he had spent his life creating and then building to the stage that we got to pre-pandemic.”

After the years of preparing and building, the deal itself came together “fairly quickly”, Toner says. “This is my one and only MBO,” he adds, “so I don’t have any experience of how long things are supposed to take.

“But when we discussed the principle with advisers initially, a couple of years ago, timetables of nine to 12 months were bandied around – you could maybe do it in six.”

Thanks to the long-time preparation and the parties’ understanding of what was expected of each of them, that projected timeframe was cut considerably. “From the moment we committed to it wholeheartedly and meaningfully,” Toner says, “the deal took four months.”

That said, the MBO itself was delayed considerably after discussions beginning in January 2020 – first because of the then-anticipated implementation of the new IR35 rules in April 2020 and subsequently because of the pandemic. “The MBO wasn’t off the table; it was just on another table,” says Toner. In autumn 2020, Toner and his colleagues decided “we had to look as far ahead as we could in spite of the pandemic, rather than using the pandemic not to look ahead”.

With “enough faith and confidence in things continuing at a sufficiently satisfactory level that we could pull this off without in any way later regretting it”, the parties went ahead. While specifics of the deal cannot be disclosed, Toner can say that the terms were based on “a set of conservative assumptions… based on the middle to lower end of the range, rather than using all the ‘best case’ scenarios.

“We had to think as far ahead as we could and try, in spite of it and against the backdrop of the pandemic, to put a deal together that worked for everyone, and we managed to do that fairly successfully,” he says.

Of the three new owners, Toner has worked at Contract Scotland the longest, joining in 2003 in his “first grown-up job”, and has been a director there since 2009; Fleming and Shave, who became directors on 1 March 2021, joined in 2007 and 2006 respectively. “Between the three of us, we have 45 years with the business, which gives the business as strong a chance of success in the future as possible,” Toner says.

He is now the majority shareholder, with the other two directors the notable minority shareholders; the three hold 100% of the equity in the business. However, Toner notes: “Part of the plan, in terms of the future growth of the business, is to create that opportunity for others.

“My guiding star on this will be that I would expect it to be required of us to create the opportunity for other people that was afforded to me.”

Contract Scotland

Contract Scotland is part of Contract Scotland Holdings, formed in February 2021.

Offices: Stirling, Stirlingshire

Sectors: Business Support Services, Civil Engineering, Construction & Building, Cost & Building Consultancy, Engineering Consultancies, Housing & Property, M&E Building Services, Senior Appointments & Executive Search.

Turnover: £14m

Staff: 25

Division of directors’ labour: Fleming and Shave oversee three recruitment streams each, both reporting into Toner, who also manages the group functions. All have the title of ‘director’.

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