When Bob Arnold pondered the future of Vehicle Security Innovators, he never saw one that didn’t prominently feature the employees who helped build the company.
Nor did he see it leaving Green Bay.
But with retirement would come a sale, and there was no telling what a buyer might ultimately do. A new owner could move the company or sell it off in pieces, costing both the employees and the community the jobs and benefits of a company that was built there — unless, of course, that new owner happened to be the collective employees.
“The success of the VSI Companies has been built with the hearts, heads and hands of our employees,” Arnold says. “It’s only right that they share in this success.”
Founded in 1948, VSI is a global manufacturer of locking security products designed for the freight and cargo industry. Its subsidiaries include VSI Lock & Key Solutions, Pop & Lock, Freight Defense, Simply Keys and Handi-Man Marine.
To protect the legacy the company and its employees built, Arnold turned to ESOP Partners, an employee stock option plan consulting and administration firm based in Appleton. Working with ESOP Partners, VSI transferred 100 percent ownership of the company to an ESOP trust in late 2014.
Going forward, as the company succeeds, the employees will directly benefit from their own hard work.
The concerns expressed by Arnold are typical of many business owners as they begin to think about retirement, says Aaron Juckett, founder and president of ESOP Partners. Certainly, they want to be paid a fair value for the business they have built, but keeping the company and the jobs local are often top concerns.
“There is no telling what a third party might do once they own it,” Juckett says. “These owners really care about their employees and the communities that have helped them succeed.”
That’s one of the many benefits of an ESOP, Juckett says. It allows the owner to realize the payoff for their investment while protecting the employees and giving them a stake in the company’s future success.
An ESOP is a recognized retirement plan that buys, holds and sells company stock for the benefit of the employees. There are approximately 10,000 ESOPs in the U.S. benefiting an estimated 10.3 million employees.
Many in Wisconsin might be familiar with the idea of an ESOP through Woodman’s Market chain of grocery stores, which touts its employee ownership in its television advertising.
After working as an ESOP consultant with groups such as Benefits Consultants, Inc. and Principal Financial Group, Juckett founded ESOP Partners in 2006 as a specialty firm focusing exclusively on helping to facilitate ESOPs and provide ongoing administration.
Since its founding, the company has grown to represent more than 150 clients nationwide with a staff of 12, which includes both full-time employees and contractors. The company recently expanded its offices to handle additional staff needs created by recent growth.
In addition to creating a one-stop shop for all things ESOP, Juckett has become an evangelizer of the concept and regularly appears at regional and national conventions to speak on the topic. ESOP Partners publishes a regularly-updated blog dedicated to ESOP issues and best practices. It’s a tool that would be more often used if the business community really understood its value, he says.
“It is just a great solution for everyone. You can build your own exit strategy while also keeping the company local,” Juckett says. “The owner is going to get full value for the sale, the employees get the stock in their retirement account and as the company continues to grow, so does that account.”
Since ESOPs are an approved retirement plan, the employee accounts are not taxable.
In Juckett’s experience, that direct tie for employees between the value of the stock and the company’s growth is often a great motivator. It can also be a powerful recruiting tool.
OMNI Resources, a technology consulting firm based in Appleton, uses its employee ownership as a recruiting tool. Offering that ownership can be the deciding factor in the highly competitive information technology space, company leaders say.
So why haven’t more companies used ESOPs? Juckett says it’s often a matter of perception, that owners are concerned they won’t get full value when selling to the employees or that the sale will mean a change in leadership. One of Juckett’s principle challenges is dispelling those myths.
The laws that make ESOPs possible dictate the selling owner is paid full value. In fact, it might actually be better than full value since the sale to the ESOP trust is a tax-favored transaction. As far as leadership, the same board of directors or management team that ran the company the day before the sale continue to run it the day after, Juckett says.
There does not have to be any change. At Green Bay-based VSI, Arnold continues on in his role as president, and no management changes are planned.
Juckett says that’s pretty typical once the initial transaction is made.
“To be a successful ESOP, you need a successful company,” Juckett says. “Why would you change what made you successful?”
ESOP Partners does not receive a commission from the sale of a company to an ESOP trust. Instead, it bills by the hour for assisting with the transaction or providing ongoing administration.
With good growth the past several years, Juckett is optimistic business is about to get better. As more baby boomers reach retirement, many are looking to sell the businesses they have spent their lives building. He sees a lot of opportunity in that workplace shift.
“It’s become a popular tool for them to make the transition,” Juckett says. “When we run the numbers for folks, the ESOP generally sells itself. We just have to continue to get the word out.”
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