Alessandro Viola from Cooperazione Finanza Impresa (CFI) highlighted that "Worker Buyouts (WBOs) are not only challenging in the preliminary phase, when making the decision to start, but especially in the first two years following." He shared this insight during a fi-compass workshop focused on worker buyouts, which was part of the larger event "FI CAMPUS 2023 – Financial instruments in changing times", hosted by the EU Commission and the European Investment Bank (EIB) in March 2023.
As many cooperative movements cannot shoulder all the costs, WBOs often require support. This is where the European Social Fund+ can help.
The EU Commission and the EIB have been working towards this support through advanced talks on the topic as well as a new ESF+ fi-compass study (due to be published by fi-compass in the second half of 2024) with a special focus on four European countries: France, Italy, Spain and Slovenia. The study aims to shed light on WBO penetration and offer insights on how employees’ buyouts could be further supported through financial instruments combined with grants under ESF+. Such support may include financing, training and upskilling programmes for workers involved in the WBO, providing resources for business development initiatives, or financially supporting the implementation of social enterprises and cooperatives.
Survey’s initial findings
Still considered a niche market in Europe, as highlighted in the study, “there are two worlds in the EU when it comes to institutional support for WBOs – on one end, Italy, France and Spain, and the rest of the EU countries on the other”.
A worker or employee buyout implies a restructuring process in which employees buy the majority or all ownership shares in their company and, in effect, become the owners. Most often, this occurs as an effort to rescue their companies from closure during difficult times and to save jobs. The survey shows that WBOs have served primarily to address this issue above all in regions affected by deindustrialisation.
It also recognises that WBO models can increasingly serve as tool to deal with transition and succession challenges in healthy businesses. This is primarily seen in France, where contrarily to Italy, “the reasons for WBOs are not necessarily and even rarely related to a lack of economic performance”.
The survey also notes: “it can be due to retirement age or willingness to address a career change”. In total, there is an estimation of 15 000 WBOs per year out of 68 000 business transfers in the country.
Despite WBO’s positive socio-economic impact, several significant obstacles to WBOs adoption are also emphasised. These challenges include the countries’ historical attitudes, a lack of managerial skills of the buyers to effectively manage the company after the buyout, regulatory gaps, limited financing from the employees, a lack of leveraged WBO model, or even limited interest from commercial banks.
A point made by Alessandro Celoni, Director of Loan Department at Banca Etica, a cooperative which has granted more than EUR 40 million loans to WBOs: "The problem is not the financing of the launch of worker buyouts, but the need for investors, since in Italy, we are mainly talking about industries", he highlighted during the 14 March 2023 workshop.
Italy: all eyes on the Marcora law
In Italy, where WBO’s roots can be traced back to the 1970s, the symbiosis between state-financed institutions and cooperative organisations has proven crucial for the proliferation of WBOs thanks to the approval of the Marcora law in 1985, which allows WBOs to be supported by the State, through Cooperazione Finanza Impreza (CFI), a subsidiary of the Ministry of Economic Development. The law was named after the Industry Minister, Giovanni Marcora, who inspired the parliamentary debate on WBOs. Between 2011 and 2021, CFI, supported 88 WBOs totalling 2 286 workers. WBOs have been slowly developing in the country, “they have played an important counter cycling effect, especially in times of crisis, in specific industries and regions mostly affected by deindustrialisation”, indicates the survey giving the example of the successful Birrificio Messina WBO in Sicily.
Italy's Marcora Law (law 49/85) allows redundant workers to use their accumulated unemployment benefit to capitalise a buyout cooperative. It thus forms part of the welfare bridge from unemployment to self-employment.
Good WBO practices in the EU: Italy, France, and Spain
France: a need for awareness raising, advisory services and financial instruments
In France, WBOs are widespread and their success can be, to a large extent, attributed to the country’s strong cooperative and worker ownership tradition, which is reflected in the presence of mutualist and cooperative banks and other financial intermediary’s set-up and supported by the national cooperatives’ confederation (CGF-SCOP).
Although financial instruments that do exist are well developed, the study highlights a need to anticipate potential increases in WBO as reported by the French Senate Report of October 2022 and to foster WBO in the cooperative format through awareness raising, advisory services and financial engineering.
The analysis carried out so far indicates some complementarity between cooperative financial instruments provided at national level and European financial instruments related mainly to equity where the EIB Group and other financial institutions can play a role, through refinancing existing financial intermediaries, providing guarantee support (e.g. EaSI 2.0), or eventually recapitalisation of equity investment vehicle (SCOPINVEST).
In 2019, indeed, as part of the EaSI programme, dedicated to social entrepreneurship, the European Investment Fund (EIF) and Socoden-FEC, a cooperative public limited company established by the French organisation CG SCOP, joined forces to encourage the entry of qualified investors into smaller social enterprises. They provided EUR 25 million of guarantees for loans of up to EUR 500 000 to cooperative enterprises, including to finance WBOs.
Spain’s Pago Unico
Further south in Spain, where WBOs are also common, the confederation of workers' cooperatives COCETA is made up of around 17 600 workers' cooperatives, totalling more than 305 000 jobs and, in the last five years, has supported over 500 worker buyouts.
Again, the study suggests that the main driver of WBO appears to be the supportive legislation put in place at a national and regional level to help workers finance a WBO. This includes the right to claim unemployment benefits in a lump-sum through the Pago Unico system, the possibility to obtain financial aid from national and sub-national funds, as well as tax advantages.
Initial insights
Through the various case studies presented, the survey points out an untapped potential for WBOs across Europe but also inconsistency when it comes to its development across Member States. For instance, Slovenia lags far behind Italy, France, or Spain. There is a great potential for EU-wide adoption through the Italian Marcora law and Spain’s Pago Unico system, where existing WBO models in Europe may be suited for different uses, such as addressing the ownership succession problem or providing reward and motivation for workers. Slovenia, for instance, is developing a leveraged WBO model, the Slovenian ESOP tailored for ownership succession challenges.
The study also suggests that support could be found under InvestEU Advisory Hub, technical Assistance (feasibility studies, business planning, financial advice and capacity-building programmes) or even partnership building between public and private actors. Using the Recovery and Resilience Facility (RRF) programme, which was established under NextGenerationEU to provide financial support and resources to businesses and industries affected by crises or economic challenges, is another option highlighted in the survey.
