Tracey gives background to trust decision

Edited by the Engineeringtalk editorial team Jan 24, 2006

Herga Electric's major shareholder Peter Tracey explains why he gave away his stake to the employees, making the firm a partnership trust company.

Herga Electric's major shareholder Peter Tracey has given away his stake to the employees, making the firm a partnership trust company.

Herga was established in 1947 and moved Bury St Edmunds in 1969, with six people.

Today it has a team of 150.

The company makes foot switches, air switches, pressure and vacuum switches and fibre optic safety equipment which are used in medical, spa bathroom and industrial applications.

Over the years Herga has won two Queen's Awards and today exports some 50% of production.

At an event to mark the transformation on 19 January 2006, Chairman Peter Tracey explained why he decided to take this unusual route.

He said: "Family companies and entrepreneurs seeking an exit route are normally directed towards flotation, a sale or a management buyout".

"However there can be significant advantages in creating a partnership company out of the original business, the way ahead which we have chosen at Herga Electric".

"It is easy to understand that employees like the idea of getting a share in the ownership".

"My own family did not want to become involved in the company, and I applaud their independence and would not welcome a reluctant heir at the helm, so the time came to consider the options for the future".

"We have worked hard to create an open management style where everyone is considered important, and we have had flexible working for a long time; ideas are actively encouraged and we put a high priority on developing individuals to make the most of their abilities".

"We wanted to create an organisation which could not be sold when tempted by a controlling minority with an offer they could not refuse, such as can happen with management buyouts".

"We wanted to have a structure which would attract and reward the very best talent so that we could take on key leaders in the future".

"I had a majority shareholding, my family trust had a significant stake and the balance was held by my fellow directors and other members of the team".

"I have now given all my shareholding to our new partnership trust".

The trust will hold at least 51% of the shares in perpetuity so that it cannot be put up for sale.

The trust includes a set of operating principles which are immutable and a set of guidelines which will develop with time.

"By giving away my shares I have avoided tax liability and have not loaded the company with excessive debt," he said.

"Meanwhile the shares held by my family trust will continue and will be brought back into the company as and when the company can afford to do so; spreading this over time also has attractive tax implications".

"We have given shares to everyone who has been with us for more than a year, the numbers depending on various criteria".

"By creating our own internal market, some people will sell these shares and some will buy more".

"We also want to make it possible for key members of the team to have a greater stake; through our internal market, it will be possible, providing the company is successful, to cash in a good capital gain when they leave".