Recommended
More Related Content
What's hot
What's hot (16)
Similar to Webinar: Employee ownership transitions versus private equity roll-ups
Similar to Webinar: Employee ownership transitions versus private equity roll-ups (20)
More from project-equity
More from project-equity (9)
Recently uploaded
Recently uploaded (20)
Webinar: Employee ownership transitions versus private equity roll-ups
- 1. 1 1 Succession Planning: Worker Ownership and Roll-Ups August 3, 2017 For Purchasing Co-‐op Member Companies: Understand employee ownership succession and private equity roll-‐ups © Project Equity and Castle Wealth Advisors 2017
- 2. 2 2 © Project Equity and Castle Wealth Advisors 2017 INTRODUCTIONS Bryan Munson NCBA-‐CLUSA Gary Pi9sford, CFP® Castle Wealth Advisors, LLC Alison Lingane Project Equity Lance Rantala BLUE HAWK
- 3. 3 3 © Project Equity and Castle Wealth Advisors 2017 AGENDA 1. Recap of Webinars Part 1 and 2 2. Employee ownership succession 3. Private equity roll-‐ups 4. Q&A
- 4. 4 4 © Project Equity and Castle Wealth Advisors 2017 1. RECAP OF WEBINARS PARTS 1 AND 2
- 5. 5 5 © Project Equity and Castle Wealth Advisors 2017 RECAP PART 1: Understanding Succession OpNons SUCCESSION OPTION KEY POINTS GOOD FOR CO-‐OP? Close down • Last resort • Lose enterprise value ✗ AcquisiNon • Sale outside the co-‐op • All cash is good for seller • All stock is not good for seller ✗ Sell to family • Good long term plan • Financially good for parents and children • Need to groom management ✔ Sell to another member • All cash sale is good for seller • Seller is secure ✔ Employee ownership • ESOP • Worker coop • Good for employees • Good for seller, potenUal tax breaks • ESOP is more expensive b/c highly regulated • Requires leadership succession ✔ Webinar recording available at: https://www.youtube.com/watch?v=f3_Gp0nqRwI
- 6. 6 6 © Project Equity and Castle Wealth Advisors 2017 RECAP PART 2: Selling to Family & Selling to Other Purchasing Co-‐op Members We covered: • Selling to Family • Selling to another purchasing co-‐op member • Benefits of an established business • Changing tax laws in 2017 or 2018 Webinar recording available at: https://www.youtube.com/watch?v=FFwhiwMTG_M
- 7. 7 7 © Project Equity and Castle Wealth Advisors 2017 2. EMPLOYEE OWNERSHIP SUCCESSION
- 8. 8 8 © Project Equity and Castle Wealth Advisors 2017 Why sell to employees? ü Receive market value for your company ü PotenUally significant tax advantages ü Protect legacy of your business ü Retain jobs
- 9. 9 9 © Project Equity and Castle Wealth Advisors 2017 Employee Ownership CooperaNves Worker-‐ Owned Coops Stock grants Housing Coops Purchasing Coops Consumer Coops You’ve got opNons! Employee Ownership structures Perpetual Employee Trusts ESOPs
- 10. 10 10 © Project Equity and Castle Wealth Advisors 2017 You’ve got opNons! 4 Employee Ownership structures Worker co-‐op DemocraNc ESOP ESOP Perpetual Employee Trust 100% employee ownership ✔ ✔ SomeUmes ✔ Direct Employee Share Ownership ✔ No No No Built in Profit-‐Sharing ✔ Recommended SomeUmes ✔ DemocraUc governance ✔ ✔ No ✔ Annual valuaUon required (ERISA / DOL regulated) No ✔ ✔ No Suitable company size? All sizes Large Large Medium to Large
- 11. 11 11 © Project Equity and Castle Wealth Advisors 2017 ESOP example: Van Meter Industrial 100% employee owned since 2005 • 90-‐year-‐old electrical supplies distribuUon company • 450+ employees in 15 branches across midwest
- 12. 12 12 © Project Equity and Castle Wealth Advisors 2017 ESOP example: Van Meter Industrial 100% employee owned since 2005 When you work with a team member at Van Meter, you’re not just working with an employee —you’re working with an owner. An owner who’s empowered to make decisions, create solu6ons and do what’s right for your business. Because we know that when our customers succeed, we succeed. “ ”
- 13. 13 13 © Project Equity and Castle Wealth Advisors 2017 ESOP -‐ Employee Stock Ownership Plan Overview • All or a porUon of the company’s shares are held in a trust on behalf of the employees • ReUrement benefit, regulated by ERISA / DOL – Qualified defined-‐contribuUon employee benefit plan designed to invest primarily in the stock of the sponsoring employer • PotenUally significant federal tax benefits at >30% of stock held by the ESOP • High set up and ongoing costs • Financed, employees don’t pay for the business
- 14. 14 14 © Project Equity and Castle Wealth Advisors 2017 Worker-‐owned cooperaNve: New Era Windows 100% worker-‐owned since 2012 • Windows manufacturer based in Chicago, IL • ~ 20 employees
- 15. 15 15 © Project Equity and Castle Wealth Advisors 2017 Worker-‐owned cooperaNve: New Era Windows 100% worker-‐owned since 2012 ConDnuing the great tradiDon of American Manufacturing, New Era Windows is owned by the same workers who skillfully produce every window that comes out of the factory. This means that the details at each stage of manufacturing are handled with sincere care and deep pride, and that you won’t find a beKer window out there for anywhere near the value we can offer. “ ”
- 16. 16 16 © Project Equity and Castle Wealth Advisors 2017 Worker CooperaNve Conversion • Business owned and governed by their workers – 100% employee ownership, high employee engagement – Board of Directors made up of majority worker-‐owners – Profit-‐sharing via patronage, based on hours worked • Flexible business form (Co-‐op Corp, LLC most common) • PotenUal significant federal tax benefits • Lower cost set up and ongoing • Financed: employees buy in with a small % of equity
- 17. 17 17 © Project Equity and Castle Wealth Advisors 2017 The business pay for itself out of future profits Worker co-‐op example Who provides % of financing Senior debt Bank CDFI 30-‐50% Subordinated debt Seller CDFI Seller: 20-‐50% Other: 10-‐50% Preferred, non-‐voNng equity Investors Can be used in place of subordinated debt in worker co-‐op Common, voNng equity Worker-‐owner voUng shares (equity buy-‐in) 0-‐10% • TransacUon is typically debt-‐financed • Seller holds a note • Employee equity buy-‐in is a small %
- 18. 18 18 © Project Equity and Castle Wealth Advisors 2017 • Financial feasibility • Employee interest • Assess leadership transiUon opUons • Timeline and roadmap • Plan leadership transiUon • Sales agreement • Financing • Set up ownership structure • Employee educaUon • Execute sales agreement • Close financing • Finalize bylaws and governance DECISION TO PURSUE FORMAL COMMITMENT SALES TRANSACTION Assess Prepare Convert 6 to 18 months Assessing succession through employee ownership
- 19. 19 19 © Project Equity and Castle Wealth Advisors 2017 3. PRIVATE EQUITY ROLL-‐UPS
- 20. 20 20 © Project Equity and Castle Wealth Advisors 2017 Private equity roll-‐ups • The offering price looks higher – BUT • More stock in new company = more risk • To unwind is very expensive • Timing is very important
- 21. 21 21 © Project Equity and Castle Wealth Advisors 2017 Join us Oct. 4-‐6 in Washington D.C. for NCBA-‐CLUSA’s 2017 Co-‐op IMPACT Conference þ Part 1: Succession Planning: How to Engage Members in Their Future þ Part 2: AcquisiUon & Selling to Family þ Part 3: Employee Ownership & Roll-‐ups q 2017 Co-‐op IMPACT Conference: Oct. 4-‐6 in D.C.
- 22. 22 22 © Project Equity and Castle Wealth Advisors 2017 QUESTIONS? Gary Pi9sford, CFP® President and CEO Castle Wealth Advisors, LLC Gary@Castle3.com 317-‐849-‐9559 Bryan Munson Manager, Business Development NCBA-‐CLUSA bmunson@ncba.coop (202) 471-‐0900 Alison Lingane Co-‐founder Project Equity alison@project-‐equity.org 510-‐684-‐6665 Lance Rantala CEO BLUE HAWK lrantala@bluehawkcooperaUve.com 773-‐525-‐7200
- 23. 23 23 © Project Equity and Castle Wealth Advisors 2017 APPENDIX
- 24. 24 24 © Project Equity and Castle Wealth Advisors 2017 You’ve got opNons! 4 Employee Ownership structures Worker co-‐op DemocraNc ESOP ESOP Perpetual Employee Trust 100% employee ownership ✔ ✔ SomeUmes ✔ Direct Employee Share Ownership ✔ No No No Built in Profit-‐Sharing ✔ Recommended SomeUmes ✔ DemocraUc governance ✔ ✔ No ✔ Annual valuaUon required (ERISA / DOL regulated) No ✔ ✔ No Suitable company size? All sizes Large Large Medium to Large
- 25. 25 25 © Project Equity and Castle Wealth Advisors 2017 Worker-‐Owned CooperaNve • ADD VISUAL Graphic from Democracy at Work InsUtute
- 26. 26 26 © Project Equity and Castle Wealth Advisors 2017 Worker-‐Owned CooperaNve • A business owned and governed by its workers – 100% employee ownership, high employee engagement – Board of Directors made up of majority worker-‐owners – Profit-‐sharing via patronage, based on hours worked • Employee stock does not appreciate • RelaUvely inexpensive to set up • PotenUal tax breaks to seller at transiUon (if is a sale) • Financed; employees pay small equity buy-‐in • Fit for any size company
- 27. 27 27 © Project Equity and Castle Wealth Advisors 2017 ESOP: Employee Stock Ownership Plan Graphic from Democracy at Work InsUtute
- 28. 28 28 © Project Equity and Castle Wealth Advisors 2017 ESOP: Employee Stock Ownership Plan • All or a porUon of the company’s shares are held in a trust on behalf of the employees • No built in profit sharing or employee governance • ReUrement benefit, regulated by ERISA / DOL – High set up and ongoing costs; annual valuaUon required • Employee shares appreciate / depreciate (value goes up / down as company valuaUon changes) • PotenUal tax benefits to FSP if structured as a sale • Tax benefits to company (and its employee owners)
- 29. 29 29 © Project Equity and Castle Wealth Advisors 2017 DemocraNc ESOP • UUlizes ESOP structure – Tax advantages to the company (and therefore its employee / community owners): 100% ESOP S-‐Corp pays no corporate income tax • With representaUve democracy at the board level • And employee parUcipaUon in elecUng Plan Trustees and on Trustee Commitees Graphic from Democracy at Work InsUtute
- 30. 30 30 © Project Equity and Castle Wealth Advisors 2017 DemocraNc ESOP or Perpetual Employee Trust • DemocraUc ESOP uUlizes ESOP trust structure • Tax advantages to the company (and therefore its employee / community owners) – 100% ESOP S-‐Corp pays no corporate income tax • Perpetual Employee Trust is not an ESOP – “Perpetual” employee-‐ownership • RepresentaUve democracy at the board level • Employee parUcipaUon in elecUng Plan Trustees and on Trustee Commitees
- 31. 31 31 © Project Equity and Castle Wealth Advisors 2017 Financing example: Island Employee CooperaNve
- 32. 32 32 © Project Equity and Castle Wealth Advisors 2017 Financing example: Island Employee CooperaNve Debt Senior Lenders $3,600,000 Seller (Sub.) $1,500,000 Inventory loan $500,000 Total Sources $5,600,000 Purchase of Business $4,250,000 Inventory $930,000 Working Capital and Technical Assistance $290,000 Closing Costs $130,000 Total Uses $5,600,000 Equity 1% Senior Debt 63% Sub. Debt 26% Inv. 10%