Innovative Financial Models to Spur Worker to Owner Conversions

For many small businesses, it took less than thirty days of COVID-19-related shutdown to create an existential crisis: beg, borrow, and steal to keep going, or cut their losses and shut their doors for good. With more than half of small business owners at or past retirement age and with no clear successor, many will turn to a fire sale liquidation to rebuild their retirement nest egg.  Others may sell to private equity “vulture capitalists” who lie in wait for a business to die and then swoop in to acquire its assets. The result is the same: jobs lost, manufacturing base eroded, access to goods and services reduced, local tax revenues diminished, and commercial corridors left eerily quiet.
 
But there is another option that can save those jobs and recirculate money in the local economy.  Before small business owners call it quits for good, they should explore an option that can be accomplished in under thirty days: selling to insiders. Employees and/or other local stakeholders already familiar with the company have a different profile from traditional speculative buyers, competitors, or those who see companies as commodities. Quite simply, they are buying their own jobs, and this makes all the difference.

Concerned Capital, a social benefit company based in Los Angeles, CA, researched and analyzed the tools used by merger and acquisition specialists to buy distressed companies and/or transfer ownership of an operating business as a discount. In this new study—published with support from The Sustainable Economies Law Center (The SELC), W.K. Kellogg Foundation, and Democracy at Work Institute—they examined three traditional transaction tools through the prism of gaining a competitive edge for employees to buy their businesses.

Have questions about this paper? bdobb@concernedcapital.org to co-author Bruce Dobb.

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