Client Overview
Cathexis Consulting Inc. is a Toronto-based consulting firm that specializes in program evaluation. As a values driven BCorp, the Cathexis team is committed to operating a socially responsible, progressive business.
As Cathexis was coming up on 23 years in business, the owners knew it was time to start succession planning, but wanted to create a plan that aligned with their values and long term vision for the company. They reached out to Firefly Insights to help them come up with a plan that was equitable, and would allow them to meet their desired goals for an exit. The owners were curious about all the possible options including co-operative and non-profit structures as well as employee ownership plans and Employee Ownership Trusts.
Challenge
Finding a model for the business that met the owners needs and resonated with the employees of the business was a critical component of this project. A thorough exploration of all the options took place and after consultation with the owners and the staff it was determined that the best path forward would be an Employee Ownership Plan. This would allow the original owners to maintain their positions in the company for as long as they want, while also recognizing the contributions of other staff members and prepare them as successors to the business. Though the original owners knew this was their preferred succession plan, the challenge was the ability of the eligible employees to afford the purchase price of the shares.
Solution
In an effort to find a solution to the affordability challenge, while ensuring the original owners recouped the fair value of the business, Firefly Insights proposed a Share Freeze. A Share Freeze is a tool used to lock in the value of the company and tie that value to the current owners, by converting their common shares to preferred shares. This then facilitates the sale of common shares to employees at a much lower rate, making it affordable for the employees to purchase the shares. The founders are then paid for the value of the preferred shares over time, while the employees’ common shares grow in value with the company. This creates the conditions for employees to benefit from what has been built and also gives them an incentive to actively contribute to the company’s future success.
Results
The share freeze enabled the employees to buy into the company at a more affordable rate, and allowed the original owners to be paid out over a period that they were comfortable with. This agreement allowed for a successful launch of their Employee Ownership plan in December of 2024.
Testimonial
We knew we needed a succession plan that reflected our values and long-term vision. Working with Firefly Insights was an excellent experience. Jennifer guided our team through a comprehensive exploration of options, always keeping our goals and the needs of our employees front and center.
The Share Freeze solution they proposed was transformative—it made employee ownership accessible while allowing us to realize the fair value of the company over time. This approach not only aligned with our commitment to equity and collaboration, but also laid the groundwork for a sustainable and successful transition.
Jennifer’s expertise and thoughtful approach was critical to success, and we are thrilled with the outcome. The launch of our Employee Ownership Plan was a significant milestone for Cathexis, and we couldn’t have achieved it without Firefly Insights’ support.
Conclusion
The ability of employees to afford to buy the company is a common concern we see among clients. Firefly Insights was able to identify and offer a solution to this challenge, which worked for both the original owners and the employees. By selling a portion of the company to their employees, the original owners of Cathexis were able to prepare for succession while retaining majority ownership and the flexibility to maintain their positions for as long as they choose.