Posted by:
Steve Dubb
Retirement of "baby boom" generation may lead to new ESOPs
According to a recent article in the business journal Portfolio.com, the employee stock ownership plan (ESOP) form of business ownership may be due for a major boost in numbers. “In the last 18 years, only 3,300 private and public companies have turned to this model,” the article reports, “but the next decade could see an increase as baby boomers with businesses search for exit strategies and ESOP companies continue their success.” Reporter Chris Casacchia notes the likely coming demand” “Business brokers estimated 65 percent to 75 percent of the small companies in the U.S.—about 10 million—likely will be up for sale in the next five to 10 years, with boomers leading the surge,” Casacchia writes.
According to the National Center on Employee Ownership at present there are 11,400 ESOP companies with 13.7 million employee-owners. Among these is one of the companies Casacchia profiles: McCarthy Building Companies.
The article notes that McCarthy was a family-owned firm, until CEO Mike McCarthy in 2002 began looking for an exit strategy that didn’t include selling the firm to a competitor or a foreign company. After researching options, he decided on the ESOP.
To finalize the structured buyout, the new management team secured an $18 million loan so that the newly formed ESOP could buy 30 percent of the company. Today, McCarthy is 100 percent owned by its employees. Company financials and other pertinent information for this top-ten commercial builder St. Louis-based firm are available here. The firm employs 1,700 salaried and 3,100 hourly employees nationwide.
The article also cites a 2008 study by City University of New York doctoral student Brent Kramer. According to the ESOP Association, Kramer found that sales-per-employee were 8.8 percent, or $44,500, higher in ESOP companies. At that rate, the typical-sized 200-person ESOP firm would bring in nearly $9 million more than a non-ESOP competitor.