What Makes an ESOP Company Different?
ESOP Underwriting: C & E Industry Understanding the Risks and Opportunities in Underwriting ESOPs
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Notice to Recipient
These materials have been prepared by Verit Advisors LLC (referred to herein as “Verit”) for the Verit client or potential client to whom materials are directly addressed and delivered (the “Company”) in connection with an actual or potential engagement, and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Verit. These materials are based on information which Verit considers to be reliable. Verit assumes no responsibility for independent investigation or verification of such information and has relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance prepared by or reviewed with the management of the Company other potential transaction participants or obtained from public sources, Verit has assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of management (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). No representation or warranty, express or implied, is made as to the accuracy or completeness of such information; and nothing contained herein is, or may be relied upon as, a representation, whether as to the past, the present, or the future. These materials were designed for use by specific persons familiar with the business and affairs of the Company and are being furnished and should be considered only in connection with other information, oral or written, being provided by Verit in connection herewith. These materials are not intended to provide the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. These materials do not constitute an offer or solicitation to sell or purchase any securities and are not a commitment by Verit (or any affiliate) to provide or arrange any financing for any transaction or to purchase any security in connection therewith. Verit assumes no obligation to update or otherwise revise these materials. These materials have not been prepared with a view toward public disclosure under state or federal securities laws or otherwise, are intended for the benefit and use of the Company, and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without the prior written consent of Verit. All materials herein are copyright protected. At the request of Verit, the recipient will return these materials to Verit without the retention of any copy of content herein. Verit, and its affiliates, do not provide tax advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by Verit or its affiliates to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. Tax treatment is subject to change by law in the future and may have retroactive effect. You are strongly urged to consult with your tax advisors regarding any potential strategy, investment, or transaction.
1
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Meeting Agenda
A. What Makes an ESOP Credit Different? •
ESOP Legal and Credit Considerations
•
Cash Flow Considerations
•
Balance Sheet Considerations
•
Legal and Fiduciary Considerations
•
Risk Management
•
Questions
B. ESOPs in the Construction and Engineering Space C. ESOP Performance
2
2 © © Copyright Copyright -- ALL ALL RIGHTS RIGHTS RESERVED, RESERVED, Verit Verit Advisors Advisors LLC, LLC, 2011 2011
What Makes an ESOP Different?
3
Copyright- -ALL ALLRIGHTS RIGHTSRESERVED, RESERVED,Verit VeritAdvisors AdvisorsLLC, LLC,2011 2011 ©©Copyright
What Makes an ESOP Company Different?
•
Regulated Transactions – Department of Labor – IRS – ERISA – Plan Design – 409(p)
•
– 415
Unique Legal Risks – Fiduciary
• •
– Compliance Reputation Risk – Employee Retirement Plan Prohibited Transactions
4
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
What Makes an ESOP Company Different?
•
Unique Risk Dynamics – Change in Tax Policy – Change in Accounting – Change in Company Dynamics – impact on ESOP
•
Unique Cash Flow Characteristics – Repurchase Obligation
– Non-cash expenses – How much tax advantage?
•
Unique Tax Advantages – Pre-Tax Deductions: Principal repaid “above the line” – S-Corp Tax Benefits: Exempt from Federal Income taxes
•
Unique Cash Flow Enhancements – Tax Advantages
– Add-Backs and Non-Cash Expenses 5
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Traditional “Basic” C – Corp ESOP Transaction Diagram
Cash
Company
1
1.
Company borrows cash from the Bank
2.
Company lends cash borrowed from Bank to newly formed ESOP
3.
ESOP gives this cash to selling shareholder(s) in exchange for their stock
4.
Stock is pledged back to the company as part of the loan agreement between the company and the ESOP. It will be held in treasury and released over time into plan participants accounts
5.
Seller(s) may elect to:
Bank
Debt
2 Cash
Seller(s) 4 Promissory Note 3
ESOP TRUST*/ Employee Benefit Plan
*The ESOP Trustee is represented by independent legal and financial advisors
• Invest cash in “qualified replacement property” to defer capital gains • Pay capital gains
6
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
ESOP Transaction – Overview Cash
Company
1
Lender(s)
Debt
2
Sellers Shares Issued to the ESOP
3
1.
Company borrows money from lenders
2.
Company gives proceeds to seller along with other forms of consideration (seller notes with warrants)
3.
Company issues shares to a newly formed in exchange for a Promissory Note. The ESOP will pay for the shares over time (30 years)
Promissory Note
ESOP TRUST*/ Employee Benefit Plan *The ESOP Trustee is represented by independent legal and financial advisors
7
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Balance Sheet Considerations
•
ESOP Accounting – Contra Equity Account – Add to Debt/Subtract from Equity
• • • •
– Negative TNW Seller Subordinated Debt – Structured as debt to be 100% ESOP owned S-Corp Repurchase Obligation Notes
– Adequate Security Leverage Metrics – EBITDA- “E” (“employee benefit expense”) Unrecorded Liabilities – Repurchase Obligation – Management Incentives
•
– Warrants Solvency Opinions
8
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
What Makes an ESOP Company Different?
•
Unique Multi-Dimensional Considerations – Trustee – Trustee’s Counsel – Trustee’s Financial Advisor – Plan Design – Equity Allocation – Benefit Plan Administrator
– Repurchase Obligation Forecast Services – Estate Planning – Executive Compensation
9
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Leverage Dynamics with ESOPs
• • • •
Negative Net Worth ESOP Accounting Value of shares purchased by the ESOP creates a contra-equity item May create negative net worth –
Accounting anomaly
– Standard bank measure of leverage, liabilities / equity, is not applicable – Need an underwriter experienced in ESOP financing
(000's omitted)
Pre-ESOP
ESOP
Post-ESOP
Assets
$5,000
$0
$5,000
Liabilities
$1,000
$1,000
Bank Debt
$1,000
$1,000
Seller Note
$4,000
$4,000
Equity (Net Worth)
$4,000
($5,000)
($1,000)
Leverage (Liabilities / Equity)
Positive
Negative
Negative
10
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Leveraged ESOP Adjustment to Underwriting
• •
•
ESOP Accounting As the seller note is usually deeply subordinated, many underwriters look at the seller notes as equity and adjust the equity accordingly Adjustments below show how an experienced underwriter would recalculate the equity
ESOP Balance Sheet
Adjustments
Underwritten Balance Sheet
Assets
$5,000
$0
$5,000
Liabilities
$1,000
$1,000
Bank Debt
$1,000
$1,000
Seller Note
$4000
($4,000)
$0
Equity (Net Worth)
($1,000 )
$4,000
$3,000
Leverage (Liabilities / Equity)
Negative
(000's omitted)
Positive 11
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
ESOP Credit: Cash Flow Considerations
• •
Magnitude and Sustainability of the Tax Shield C-Corp – Payroll Limitation: 25% – When it’s gone, it’s gone…
•
– AMT Partial S-Corp ESOPs – Single class of stock fix bullet style to a dash here and below
• • • •
– Tax distributions to individual shareholders as well as cash distributions to ESOP EBITDA “E” Fixed Charge Coverage: Should include repurchase obligations Deferred Compensation and Management Contracts Repurchase Obligation – Vesting Provisions – Diversification – Distribution
12
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Risk Management
• • • •
Policy Guidelines Policy Control Client Selectivity Independence and qualifications of advisors – Valuation – Trustee – Attorney
– Accountants
13
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
ESOPs in the Construction and Engineering Space
14
Copyright- -ALL ALLRIGHTS RIGHTSRESERVED, RESERVED,Verit VeritAdvisors AdvisorsLLC, LLC,2011 2011 ©©Copyright
C&E Companies with ESOPs
Company
Type
City
State Employees
Company
Type
City
Parsons Corp.
100% ESOP
Pasadena
CA
12,000
Weston Solutions Inc.
100% ESOP
West Chester PA
1,900
Black & Veatch*
Partial ESOP
Kansas City
MO
8,500
The Sundt Companies
100% ESOP
Tucson
AZ
1,575
Austin Industries Performance Contracting Group*
100% ESOP
Dallas
TX
6,733
Brown and Caldwell
Partial ESOP Walnut Creek CA
1,500
100% ESOP
Lenexa
KS
5,700
TD Industries, Inc.
100% ESOP
TX
1,500
HDR, Inc.*
100% ESOP
Omaha
NE
5,000
STV Group*
PA
1,500
HNTB*
Partial S-Corp Kansas City
MO
3,100
American Systems Corp.
100% S-Corp Douglassville Partial SCorp Chantilly
VA
1,335
Terracon* Hensel Phelps Construction Co. McCarthy Building Companies*
Partial S-Corp Lenexa
KS
2,715
Swinerton
Partial ESOP San Francisco CA
1,300
--
CO
2,500
Fred Weber
Partial ESOP Maryland Hts. MO
1,200
Branch Group
100% ESOP
Roanoke
VA
1,200
Anson Industries
--
Melrose Park
IL
1,200
Pizzagalli Construction
100% S-Corp S. Burlington
VT
1,200
Greeley
100% S-Corp St. Louis
Burns & McDonnell Engr. Co. Partial ESOP
Kansas City
MO
2,500
MO
2,400
Dallas
State
Employees
Gensler*
Partial C-Corp San Francisco CA
2,300
Messer Construction Co.*
100% S-Corp Cincinatti
OH
800
Cianbro Corp.
100% ESOP
ME
2,100
Psomas*
Partial ESOP Los Angeles
CA
575
Kleinfelder*
Partial S-Corp San Diego
CA
2,000
Rieth-Riley Construction Co.* 100% S-Corp Goshen
IN
400
Pittsfield
* Represents current or prior Verit Advisors’ client
15
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Performance of ESOP Companies
16
Copyright- -ALL ALLRIGHTS RIGHTSRESERVED, RESERVED,Verit VeritAdvisors AdvisorsLLC, LLC,2011 2011 ©©Copyright
ESOP Efficacy: Academic & Institutional Support Numerous studies on ESOP-owned company performance have measured the same positive impact: ESOP-owned companies outperform their peers in terms of productivity and sustainability, generating increased sales and profitability Georgetown University Employee Ownership Foundation Employee-Owned S Corporations of America University of Pennsylvania Brent Kramer
•
S-Corp ESOP companies outperformed their non-ESOP counterparts during the recession in job creation, revenue growth, and providing higher wages and retirement security
•
88.5% of ESOP companies outperformed the stock market in 2008
•
S-Corp ESOP companies performed better during the recession in terms of profitability, retaining and growing jobs, and growth in retirement assets
• •
S-Corp ESOP companies are a net contributor to the economy. Increased company productivity and significantly greater retirement assets by employees were key factors in the findings ESOP companies have sales per employee that are 8.8% greater than comparable non-ESOP companies
Rutgers
Blair, Kruse & Blasi
University of Michigan
• • •
ESOPs increase sales, employment, and sales/employee by about 2.3% to 2.4% per year over what would have been expected absent an ESOP 74% of the ESOP companies remained as independent operations while only 38% of the comparison companies remained independent. None of the ESOP companies went bankrupt, but 25% of the comparison companies did go bankrupt The incidence of employee participation programs, such as work teams and advisory councils, increased 50% to 100% after an employee ownership plan was set up
17
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Mary Josephs Executive Managing Director Ms. Josephs is Founder and CEO of Verit Advisors LLC, a specialized middle market investment banking firm. Ms. Josephs is a nationally recognized leader with over 28 years experience with ESOPS as a specialized solutions-oriented succession and liquidity transaction for middle market companies. Ms. Josephs has advised, structured and closed over 200 financings for middle market companies representing over $7 billion in senior credit and nearly $30 billion in enterprise
value, most of which have supported ESOP transactions. Ms. Josephs founded and built the ESOP group at LaSalle National Bank into a practice that was recognized as the nation’s leading ESOP financing team. Ms. Josephs also co-founded and launched a leading ESOP Advisory practice for ABN AMRO LaSalle Corporate Finance (and subsequently Bank of America-Merrill Lynch). Upon LaSalle’s acquisition by Bank of America, Ms. Josephs, as ESOP Solutions Executive for Bank of America Merrill Lynch, had the opportunity to lead a successful ESOP capability for all of Bank of America-Merrill Lynch. Over the past 25 years Ms. Josephs has held and continues to hold leadership positions throughout the ESOP community including: past chair of The ESOP Association’s Finance Advisory Committee, past member of The ESOP Association’s Board of Directors, past and current board member for The National Center for Employee Ownership, current Advisory Board member for Employee-Owned S Corporations of America, current member of The ESOP Association’s Advisory Committees and lifetime member of The ESOP Association’s Board of Governors. Ms. Josephs has written frequently and spoken at well over 100 conferences
nationally on issues related to succession and liquidity alternatives for closely held businesses, including ESOPs, ESOP financing, ESOP M&A, and other corporate finance solutions. Ms. Josephs holds a BA in Economics and French from Marquette University and an MBA in Finance from the University of Chicago. Ms. Josephs is a member of NASD: Series 24, 7, and 63. Ms. Josephs is on the board of Big Shoulders, a member of the Economic Club of Chicago and an alumnae of Leadership Greater Chicago.
Contact Information:
Mary Sullivan Josephs Executive Managing Director Verit Advisors LLC Telephone: 312-572-6211 [email protected]
18 18
18 © © Copyright Copyright -- ALL ALL RIGHTS RIGHTS RESERVED, RESERVED, Verit Verit Advisors Advisors LLC, LLC, 2011 2011
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Notice to Recipient
These materials have been prepared by Verit Advisors LLC (referred to herein as “Verit”) for the Verit client or potential client to whom materials are directly addressed and delivered (the “Company”) in connection with an actual or potential engagement, and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Verit. These materials are based on information which Verit considers to be reliable. Verit assumes no responsibility for independent investigation or verification of such information and has relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance prepared by or reviewed with the management of the Company other potential transaction participants or obtained from public sources, Verit has assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of management (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). No representation or warranty, express or implied, is made as to the accuracy or completeness of such information; and nothing contained herein is, or may be relied upon as, a representation, whether as to the past, the present, or the future. These materials were designed for use by specific persons familiar with the business and affairs of the Company and are being furnished and should be considered only in connection with other information, oral or written, being provided by Verit in connection herewith. These materials are not intended to provide the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. These materials do not constitute an offer or solicitation to sell or purchase any securities and are not a commitment by Verit (or any affiliate) to provide or arrange any financing for any transaction or to purchase any security in connection therewith. Verit assumes no obligation to update or otherwise revise these materials. These materials have not been prepared with a view toward public disclosure under state or federal securities laws or otherwise, are intended for the benefit and use of the Company, and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without the prior written consent of Verit. All materials herein are copyright protected. At the request of Verit, the recipient will return these materials to Verit without the retention of any copy of content herein. Verit, and its affiliates, do not provide tax advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by Verit or its affiliates to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. Tax treatment is subject to change by law in the future and may have retroactive effect. You are strongly urged to consult with your tax advisors regarding any potential strategy, investment, or transaction.
1
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Meeting Agenda
A. What Makes an ESOP Credit Different? •
ESOP Legal and Credit Considerations
•
Cash Flow Considerations
•
Balance Sheet Considerations
•
Legal and Fiduciary Considerations
•
Risk Management
•
Questions
B. ESOPs in the Construction and Engineering Space C. ESOP Performance
2
2 © © Copyright Copyright -- ALL ALL RIGHTS RIGHTS RESERVED, RESERVED, Verit Verit Advisors Advisors LLC, LLC, 2011 2011
What Makes an ESOP Different?
3
Copyright- -ALL ALLRIGHTS RIGHTSRESERVED, RESERVED,Verit VeritAdvisors AdvisorsLLC, LLC,2011 2011 ©©Copyright
What Makes an ESOP Company Different?
•
Regulated Transactions – Department of Labor – IRS – ERISA – Plan Design – 409(p)
•
– 415
Unique Legal Risks – Fiduciary
• •
– Compliance Reputation Risk – Employee Retirement Plan Prohibited Transactions
4
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
What Makes an ESOP Company Different?
•
Unique Risk Dynamics – Change in Tax Policy – Change in Accounting – Change in Company Dynamics – impact on ESOP
•
Unique Cash Flow Characteristics – Repurchase Obligation
– Non-cash expenses – How much tax advantage?
•
Unique Tax Advantages – Pre-Tax Deductions: Principal repaid “above the line” – S-Corp Tax Benefits: Exempt from Federal Income taxes
•
Unique Cash Flow Enhancements – Tax Advantages
– Add-Backs and Non-Cash Expenses 5
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Traditional “Basic” C – Corp ESOP Transaction Diagram
Cash
Company
1
1.
Company borrows cash from the Bank
2.
Company lends cash borrowed from Bank to newly formed ESOP
3.
ESOP gives this cash to selling shareholder(s) in exchange for their stock
4.
Stock is pledged back to the company as part of the loan agreement between the company and the ESOP. It will be held in treasury and released over time into plan participants accounts
5.
Seller(s) may elect to:
Bank
Debt
2 Cash
Seller(s) 4 Promissory Note 3
ESOP TRUST*/ Employee Benefit Plan
*The ESOP Trustee is represented by independent legal and financial advisors
• Invest cash in “qualified replacement property” to defer capital gains • Pay capital gains
6
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
ESOP Transaction – Overview Cash
Company
1
Lender(s)
Debt
2
Sellers Shares Issued to the ESOP
3
1.
Company borrows money from lenders
2.
Company gives proceeds to seller along with other forms of consideration (seller notes with warrants)
3.
Company issues shares to a newly formed in exchange for a Promissory Note. The ESOP will pay for the shares over time (30 years)
Promissory Note
ESOP TRUST*/ Employee Benefit Plan *The ESOP Trustee is represented by independent legal and financial advisors
7
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Balance Sheet Considerations
•
ESOP Accounting – Contra Equity Account – Add to Debt/Subtract from Equity
• • • •
– Negative TNW Seller Subordinated Debt – Structured as debt to be 100% ESOP owned S-Corp Repurchase Obligation Notes
– Adequate Security Leverage Metrics – EBITDA- “E” (“employee benefit expense”) Unrecorded Liabilities – Repurchase Obligation – Management Incentives
•
– Warrants Solvency Opinions
8
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
What Makes an ESOP Company Different?
•
Unique Multi-Dimensional Considerations – Trustee – Trustee’s Counsel – Trustee’s Financial Advisor – Plan Design – Equity Allocation – Benefit Plan Administrator
– Repurchase Obligation Forecast Services – Estate Planning – Executive Compensation
9
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Leverage Dynamics with ESOPs
• • • •
Negative Net Worth ESOP Accounting Value of shares purchased by the ESOP creates a contra-equity item May create negative net worth –
Accounting anomaly
– Standard bank measure of leverage, liabilities / equity, is not applicable – Need an underwriter experienced in ESOP financing
(000's omitted)
Pre-ESOP
ESOP
Post-ESOP
Assets
$5,000
$0
$5,000
Liabilities
$1,000
$1,000
Bank Debt
$1,000
$1,000
Seller Note
$4,000
$4,000
Equity (Net Worth)
$4,000
($5,000)
($1,000)
Leverage (Liabilities / Equity)
Positive
Negative
Negative
10
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Leveraged ESOP Adjustment to Underwriting
• •
•
ESOP Accounting As the seller note is usually deeply subordinated, many underwriters look at the seller notes as equity and adjust the equity accordingly Adjustments below show how an experienced underwriter would recalculate the equity
ESOP Balance Sheet
Adjustments
Underwritten Balance Sheet
Assets
$5,000
$0
$5,000
Liabilities
$1,000
$1,000
Bank Debt
$1,000
$1,000
Seller Note
$4000
($4,000)
$0
Equity (Net Worth)
($1,000 )
$4,000
$3,000
Leverage (Liabilities / Equity)
Negative
(000's omitted)
Positive 11
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
ESOP Credit: Cash Flow Considerations
• •
Magnitude and Sustainability of the Tax Shield C-Corp – Payroll Limitation: 25% – When it’s gone, it’s gone…
•
– AMT Partial S-Corp ESOPs – Single class of stock fix bullet style to a dash here and below
• • • •
– Tax distributions to individual shareholders as well as cash distributions to ESOP EBITDA “E” Fixed Charge Coverage: Should include repurchase obligations Deferred Compensation and Management Contracts Repurchase Obligation – Vesting Provisions – Diversification – Distribution
12
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Risk Management
• • • •
Policy Guidelines Policy Control Client Selectivity Independence and qualifications of advisors – Valuation – Trustee – Attorney
– Accountants
13
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
ESOPs in the Construction and Engineering Space
14
Copyright- -ALL ALLRIGHTS RIGHTSRESERVED, RESERVED,Verit VeritAdvisors AdvisorsLLC, LLC,2011 2011 ©©Copyright
C&E Companies with ESOPs
Company
Type
City
State Employees
Company
Type
City
Parsons Corp.
100% ESOP
Pasadena
CA
12,000
Weston Solutions Inc.
100% ESOP
West Chester PA
1,900
Black & Veatch*
Partial ESOP
Kansas City
MO
8,500
The Sundt Companies
100% ESOP
Tucson
AZ
1,575
Austin Industries Performance Contracting Group*
100% ESOP
Dallas
TX
6,733
Brown and Caldwell
Partial ESOP Walnut Creek CA
1,500
100% ESOP
Lenexa
KS
5,700
TD Industries, Inc.
100% ESOP
TX
1,500
HDR, Inc.*
100% ESOP
Omaha
NE
5,000
STV Group*
PA
1,500
HNTB*
Partial S-Corp Kansas City
MO
3,100
American Systems Corp.
100% S-Corp Douglassville Partial SCorp Chantilly
VA
1,335
Terracon* Hensel Phelps Construction Co. McCarthy Building Companies*
Partial S-Corp Lenexa
KS
2,715
Swinerton
Partial ESOP San Francisco CA
1,300
--
CO
2,500
Fred Weber
Partial ESOP Maryland Hts. MO
1,200
Branch Group
100% ESOP
Roanoke
VA
1,200
Anson Industries
--
Melrose Park
IL
1,200
Pizzagalli Construction
100% S-Corp S. Burlington
VT
1,200
Greeley
100% S-Corp St. Louis
Burns & McDonnell Engr. Co. Partial ESOP
Kansas City
MO
2,500
MO
2,400
Dallas
State
Employees
Gensler*
Partial C-Corp San Francisco CA
2,300
Messer Construction Co.*
100% S-Corp Cincinatti
OH
800
Cianbro Corp.
100% ESOP
ME
2,100
Psomas*
Partial ESOP Los Angeles
CA
575
Kleinfelder*
Partial S-Corp San Diego
CA
2,000
Rieth-Riley Construction Co.* 100% S-Corp Goshen
IN
400
Pittsfield
* Represents current or prior Verit Advisors’ client
15
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Performance of ESOP Companies
16
Copyright- -ALL ALLRIGHTS RIGHTSRESERVED, RESERVED,Verit VeritAdvisors AdvisorsLLC, LLC,2011 2011 ©©Copyright
ESOP Efficacy: Academic & Institutional Support Numerous studies on ESOP-owned company performance have measured the same positive impact: ESOP-owned companies outperform their peers in terms of productivity and sustainability, generating increased sales and profitability Georgetown University Employee Ownership Foundation Employee-Owned S Corporations of America University of Pennsylvania Brent Kramer
•
S-Corp ESOP companies outperformed their non-ESOP counterparts during the recession in job creation, revenue growth, and providing higher wages and retirement security
•
88.5% of ESOP companies outperformed the stock market in 2008
•
S-Corp ESOP companies performed better during the recession in terms of profitability, retaining and growing jobs, and growth in retirement assets
• •
S-Corp ESOP companies are a net contributor to the economy. Increased company productivity and significantly greater retirement assets by employees were key factors in the findings ESOP companies have sales per employee that are 8.8% greater than comparable non-ESOP companies
Rutgers
Blair, Kruse & Blasi
University of Michigan
• • •
ESOPs increase sales, employment, and sales/employee by about 2.3% to 2.4% per year over what would have been expected absent an ESOP 74% of the ESOP companies remained as independent operations while only 38% of the comparison companies remained independent. None of the ESOP companies went bankrupt, but 25% of the comparison companies did go bankrupt The incidence of employee participation programs, such as work teams and advisory councils, increased 50% to 100% after an employee ownership plan was set up
17
© Copyright - ALL RIGHTS RESERVED, Verit Advisors LLC, 2011
Mary Josephs Executive Managing Director Ms. Josephs is Founder and CEO of Verit Advisors LLC, a specialized middle market investment banking firm. Ms. Josephs is a nationally recognized leader with over 28 years experience with ESOPS as a specialized solutions-oriented succession and liquidity transaction for middle market companies. Ms. Josephs has advised, structured and closed over 200 financings for middle market companies representing over $7 billion in senior credit and nearly $30 billion in enterprise
value, most of which have supported ESOP transactions. Ms. Josephs founded and built the ESOP group at LaSalle National Bank into a practice that was recognized as the nation’s leading ESOP financing team. Ms. Josephs also co-founded and launched a leading ESOP Advisory practice for ABN AMRO LaSalle Corporate Finance (and subsequently Bank of America-Merrill Lynch). Upon LaSalle’s acquisition by Bank of America, Ms. Josephs, as ESOP Solutions Executive for Bank of America Merrill Lynch, had the opportunity to lead a successful ESOP capability for all of Bank of America-Merrill Lynch. Over the past 25 years Ms. Josephs has held and continues to hold leadership positions throughout the ESOP community including: past chair of The ESOP Association’s Finance Advisory Committee, past member of The ESOP Association’s Board of Directors, past and current board member for The National Center for Employee Ownership, current Advisory Board member for Employee-Owned S Corporations of America, current member of The ESOP Association’s Advisory Committees and lifetime member of The ESOP Association’s Board of Governors. Ms. Josephs has written frequently and spoken at well over 100 conferences
nationally on issues related to succession and liquidity alternatives for closely held businesses, including ESOPs, ESOP financing, ESOP M&A, and other corporate finance solutions. Ms. Josephs holds a BA in Economics and French from Marquette University and an MBA in Finance from the University of Chicago. Ms. Josephs is a member of NASD: Series 24, 7, and 63. Ms. Josephs is on the board of Big Shoulders, a member of the Economic Club of Chicago and an alumnae of Leadership Greater Chicago.
Contact Information:
Mary Sullivan Josephs Executive Managing Director Verit Advisors LLC Telephone: 312-572-6211 [email protected]
18 18
18 © © Copyright Copyright -- ALL ALL RIGHTS RIGHTS RESERVED, RESERVED, Verit Verit Advisors Advisors LLC, LLC, 2011 2011
