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Why Answer Digital chose employee ownership over an eight-figure buyout offer from venture capitalists

With clients spanning international retailers, global financial institutions and the NHS, the Leeds-based digital and IT consultancy firm, Answer Digital, had several options open to them when they were exploring succession plans, from private equity to trade sale offers. 

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The Answer Digital team in from of their building

Gary Parlett, who co-founded the business with his wife Kate Parlett in 1999, says all of these options, including an eight-figure buyout offer from venture capitalists, were considered. But ultimately there was only one option that Parlett believed was in the best interest of both the business and its team of nearly 70 staff. 

“Our refusal to put a ‘For Sale’ sign on the business meant we weren’t driven down an advisor-led process,” Parlett explains. While they found the approaches are flattering, their focus was on being transparent with other leaders in the company.

“We considered each approach on merit and it became clear that the private equity agenda was counter to where we felt the business was heading. All of the interest in the business helped shape a belief in what was important and only highlighted the fact that Answer Digital is a great company – so why would I want to stop backing it?”
- Gary Parlett, Answer Digital.
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Answer Digital
- Answer Digital

Transitioning to employee ownership 

The wheels were set in motion for a transition to employee ownership, which was completed in May last year when 75% of the business was placed into an Employee Ownership Trust. While the business self-funded the deal, advice and support were provided by Paul Land at TLP and the employee ownership experts at Baxendale to ease the transition process.

All of this happened in the midst of the first UK lockdown for the COVID pandemic, and while Parlett admits that some thought was given to postponing the transition due to economic uncertainty, the directors intuitively decided that it was the perfect time to proceed.

Staff were told about the move to employee ownership six weeks in advance of the transition via a virtual ‘Town Hall’ meeting and Parlett had no reservations about the positive response from the business’s new employee-owners. “We clearly surprised them. The first question we got in the online chat was ‘how much is this going to cost me?’” Parlett recalls.

As a people-focused consultancy with key values focusing upon the recognition of employee contribution, the move to employee ownership was simply ‘fulfilling destiny,’ one that harkened back to the business’s roots and the name it was founded with: The Ultimate People Company.

“The reality of employee ownership is not immediate but 12 months into our journey and the team have absolutely embraced the notion that this was a huge step-change for the business,” says Parlett. “It’s been fantastic.”

 

What changes did Answer Digital introduce once it became employee-owned? 

Answer Digital wanted to ensure everyone knew that they could play a part in building the future of the company, and several initiatives were introduced to empower the teams. Amongst these initiatives was a complete rebrand and a re-definition of the company’s career structures, both of which were led by internal teams.

A significant area of focus for the business is developing its Academy programme, which has nurtured talent for over six years by fast-tracking young people in software development, automation testing, health system integration and project management.

More than half of the team at Answer Digital are graduates from the Academy, and the move to employee ownership has only strengthened the purpose of ‘growth from within’ and, as Parlett says, the culture of support and mentoring is now rippling out across wider parts of the company. 

 

Outcomes and reflections 

Just over a year on from the move and Parlett says the business couldn’t be in a better place. The business is approaching 100 in headcount and is set to have its strongest financial year to date. Parlett attributes both of these growth factors significantly to ‘empowerment and ambition within the company,’ as a result of the new employee ownership structure. 

“From a growth and retention perspective, [employee ownership] is significant,” he says. [New staff] feel like they’re coming to a very different company, and what I enjoy hearing most is that when they arrive, they immediately get a sense of that supportive culture and can feel it. That isn’t easy to achieve, especially during a period of such rapid growth.”

The benefits to retention are particularly important, especially in a fast-moving digital sector.

The move to employee ownership is a strong commercial decision and we’re in a very competitive market for people. What we’ve done really sends out a strong message to not just future employee-owners at Answer Digital, but our customers too.
- Gary Parlett, Answer Digital.

They’re recognising we’re a bit different, hopefully in a way that’s supportive of their own ambitions because that’s what we’re all about.”

When Parlett discusses employee ownership with other businesses, he says he’s often asked ‘what’s the catch?’ There is none, he replies, but his advice to anyone that’s exploring employee ownership as a succession option would be to ensure they’re doing it for the right reasons. 

“If it’s solely about the tax benefits, then it is unlikely to be the right decision,” he says. “But if it’s about succession and legacy, then employee ownership really is the right way to go.”