The Entertainer’s Employee Ownership Move – What It Means for SME Succession Planning

The founders of toy store chain The Entertainer are set to transfer their ownership to an Employee Ownership Trust (EOT) next month, marking a major milestone in the UK’s growing employee ownership sector. Due to complete in September, the move is the culmination of a long-term succession plan by Gary and Catherine Grant, who founded the business in 1981.

This strategic decision by one of the UK’s largest toy retailers highlights a sophisticated succession planning approach that’s gaining considerable traction among business owners. For SMEs contemplating their exit strategy, The Entertainer’s transition offers valuable insights into how Employee Ownership Trusts can serve as a viable alternative to traditional sale routes.

Understanding Employee Ownership Trusts

An Employee Ownership Trust is a legal structure that enables businesses to be owned indirectly by their workforce. Rather than individual employee shareholdings, the EOT acts as a corporate trustee, holding shares on behalf of all qualifying employees as beneficiaries.

The trust operates under the governance of appointed trustees, who have fiduciary duties to manage the business in the interests of the employee beneficiaries. This structure allows for professional management while ensuring the workforce benefits from the company’s success through profit distributions and enhanced job security.

Importantly, EOTs were specifically designed by government to encourage business transfers that preserve employment and company culture, supported by favourable tax treatment.

The Growth of Employee Ownership in the UK

There are now around 2,500 employee-owned businesses, with 560 new transitions recorded in 2024 alone, according to recent industry data. This growth reflects increasing recognition among business owners and their advisers that EOTs offer a compelling solution to common succession challenges. The model has proven successful across diverse sectors, from professional services and manufacturing to retail and technology businesses.

Research consistently demonstrates that employee-owned businesses often outperform their traditionally-owned counterparts in terms of productivity, resilience, and staff retention – helping to build sustainable, long-term value.

Key Advantages of the EOT Route

• Tax Efficiency Subject to meeting qualifying conditions, sales to an EOT can benefit from Capital Gains Tax relief, potentially saving sellers significant amounts compared to third-party sales. The business can also make tax-free bonus payments to employees of up to £3,600 per employee per year.
• Cultural Preservation EOTs enable business owners to preserve their company’s values and culture by keeping control within the existing workforce. This is particularly valuable for businesses where culture and employee relationships are central to competitive advantage.
• Flexibility in Exit Terms Unlike trade sales, EOT transactions can be structured with considerable flexibility around timing, consideration terms, and the seller’s ongoing involvement. Many founders remain involved in governance or advisory capacities post-transaction.
• Employee Engagement and Retention As beneficiaries of the EOT, employees will receive tax-free bonuses based on revenue generated by the business. They will also have influence over the business direction, as demonstrated by The Entertainer’s approach in creating a Colleague Advisory Board.
• Market Positioning Employee-owned status can enhance a business’s market position, particularly with customers and suppliers who value responsible business practices and long-term stability.

The EOT Process: A Structured Approach

Establishing an EOT requires careful planning and professional guidance. The typical process involves:

• Initial Feasibility Assessment Determining whether the business generates sufficient cash flow to service any deferred consideration and whether the company culture is suitable for employee ownership.
• Independent Valuation Obtaining a professional business valuation to establish fair market value, which forms the basis for the transaction price.
• Trust Structure and Governance Designing the EOT structure, including trustee appointments, governance arrangements, and employee benefit mechanisms.
• Legal Documentation Preparing the necessary legal documentation, including trust deeds, share purchase agreements, and employment-related documentation.
• Tax Planning and Compliance Ensuring the transaction structure meets the qualifying conditions for tax reliefs and complies with all relevant legislation.
• Completion and Implementation Managing the completion process and implementing the new governance and benefit arrangements.

Considerations and Suitability

While EOTs offer significant advantages, they’re not suitable for every business or owner. Key considerations include:

The business must be profitable enough to service any deferred consideration while maintaining operational requirements. The existing management team should be capable of operating independently, and employees should be receptive to the responsibilities that come with beneficial ownership.

Sellers should also consider their own financial objectives and whether an EOT structure can deliver the required consideration on acceptable terms.

The Entertainer’s Strategic Decision

The Entertainer said this decision will ensure the group remains independent with its employees as beneficiaries, while “preserving both the family’s legacy and the family feel of the business”. This articulates precisely why many business owners are drawn to the EOT model – it offers a way to achieve financial objectives while maintaining the business’s core identity and values.

For The Entertainer’s 1,900 employees across their retail network, the transition provides enhanced job security, profit participation, and a genuine voice in the business’s future direction.

Implications for SME Owners

The Entertainer’s move demonstrates that EOTs are not merely a niche option for unique circumstances, but a mainstream succession planning tool suitable for substantial businesses with complex operational requirements.

For SME owners considering their exit strategy, several key takeaways emerge:

• Start planning early – successful EOT transitions require careful preparation and should ideally be considered several years before the intended exit date.
• Professional advice is essential – the legal, tax, and commercial complexities require specialist expertise to navigate successfully.
• Employee readiness matters – while employees don’t need to formally approve the transition, the success of the model depends on workforce engagement and commitment to the ownership transition.
• Consider the full range of benefits – beyond the financial and tax advantages, EOTs can enhance business resilience, market position, and long-term sustainability.

Looking Forward

As more businesses like The Entertainer demonstrate the practical benefits of employee ownership, we expect continued growth in EOT adoptions across all business sectors and sizes.

For business owners contemplating their succession options, now is an opportune time to explore whether an Employee Ownership Trust could provide the strategic, financial, and personal benefits they seek from their exit journey.

The key is to start the conversation early, with advisers who understand both the opportunities and complexities that EOTs present in today’s business environment.

If you would like to explore an Employee Ownership Trust for your business, get in touch with our expert, Anton Stirrett via Anton.Stirrett@primaslaw.co.uk.