How can an ESOP help your regional business compete with larger, national firms?
The answer: By putting your company’s money where its mouth is.
In Q3 2019, Menke & Associates, Inc. assisted innovative landscape architecture and urban design firm MKSK in successfully converting to 100% employee ownership.
MKSK was born out of the 2011 merger of two Columbus, OH landscape architecture and planning firms, both of which had been in business since 1990. Since then, MKSK has more than doubled in size, growing to 100 employees working out of seven offices across Ohio, Michigan, Indiana, South Carolina, and Kentucky. Their team of passionate professionals has transformed key urban spaces ranging from parks to libraries to museums to hospital campuses with their holistic vision focusing on the interaction of people and place.
The employees of MKSK Studios – now 100% ESOP-Owned
By 2018, MKSK’s ten owners were beginning to examine their options for leadership and ownership transition. They seriously considered several merger and acquisition possibilities, but ultimately realized that would mean giving up the MKSK brand and the reputation they had worked so hard to build.
“Our brand and reputation are a real source of pride for us,” said MKSK CFO Chris Hostettler. “That brand would have disappeared if we merged with someone else. An ESOP was the natural option for us in that respect.”
MKSK chose Menke & Associates to help them with the process of creating their ESOP and overseeing the sale of their stock not because of Menke’s extensive experience, not just with ESOPs in general, but also with their industry. “There’s a lot that makes architecture and engineering unique,” Hostettler said. “When we looked at the work Menke had done and their familiarity with the AEC industry, we felt we wanted someone who knew that world like they did.” Menke’s understanding of the industry and familiarity with MKSK’s business will be an invaluable asset as Menke continues to provide recordkeeping and administrative services for their ESOP in years to come.
Menke’s managing director of investment banking, Phillip DeDominicis, along with Menke’s industry-leading team of legal, accounting, and tax experts, guided MKSK’s leadership through the ESOP transaction, helping the firm transition from a limited liability company with ten members (owners) to a 100% employee owned S-Corp—reworking the structure of the company from the ground up.
The ESOP solved MKSK’s question of succession planning by putting the future of the brand in the hands of its employee-owners, ensuring the brand’s name and reputation will stay intact. With Menke’s help, the ESOP also accomplished MKSK’s financial goals:
- Eliminated their corporate federal income tax by transferring 100% ownership to the Employee Stock Ownership Trust.
- The tax savings enables MKSK to pay off its shareholder notes at a faster rate.
- MKSK can also use the savings to offer competitive pricing when bidding for projects, making them even more attractive to potential and existing clients.
- Allows the company to offer industry-leading retirement benefits that will help them retain and attract top talent in an enormously competitive field.
Those benefits are in addition to the boosts to employee morale and productivity that studies have repeatedly shown ESOPs bring to a company.
Just as importantly, MKSK’s ESOP offers an intangible benefit with enormous implications: it shows that they are a company that truly lives its values.
Companies love to talk about their values, and how their values drive them. It makes for a great recruiting point in an economy where potential hires have more tools at their disposal than ever before for evaluating potential employers. But, if an employee’s compensation is not tied to the long term performance of the company, “company values” may be nothing more than a slogan. Today’s top-performing employees want to work for companies that truly integrate their values into every aspect of their business. MKSK’s decision to become 100% employee-owned is a perfect illustration of how to do just that.
According to MKSK Studios Principal and COO Tim Schmalenberger, “The MKSK approach has always focused on exceeding expectations through creativity, community, and teamwork.”
Those values—creativity, community, and teamwork—are clearly visible in their work. Whether it’s a park that revitalizes underutilized urban space and turns it into someplace inviting to people from every walk of life, or a hospital campus that incorporates the very act of getting to your doctor into the healing process, all of MKSK’s projects show their commitment to innovation, accessibility, usability, and creating spaces that bring people together.
Similarly, MKSK’s ESOP demonstrates how they have woven those core values into the fabric of their company:
- Giving every employee an ownership stake in the company instead of just a small group at the top takes the traditional ownership model for architecture and engineering firms and turns it on its ear.
- ESOPs boost talent retention, ensuring that the professionals who give their skill and ingenuity to MKSK’s projects will be there to see those projects through from start to finish, and will continue to be available as resources to the communities they serve even after the projects reach completion, maintaining all-important long term client relationships.
- Converting to 100% employee ownership places the future of MKSK directly in the hands of its employees and gives them all a genuine stake in the brand’s success.
By choosing to convert to 100% employee ownership, MKSK made a bold statement about their commitment to their values. It’s a message that is sure to resonate with the exceptional team who have already worked so hard to make MKSK so successful, as well as with the many top-performing professionals who will be drawn to the brand.
“There is a real battle for talent in our industry,” said Hostettler. “We’re a regional firm competing against larger, national firms for creative and talented people. Being able to reward people through employee ownership, that’s another arrow in our quiver to attract and retain those talents.”
Menke is proud to have helped MKSK create an ESOP that will fuel their growth and success for decades to come. Just over a year ago, MKSK was contemplating giving up their name and identity to merge with another brand. Now, as other landscape architecture firms eye their own succession options, they will surely wonder if the best thing for their employees and clients might just be to become a part of MKSK.
Menke & Associates, Inc. has helped over 3,500 companies successfully transition to employee ownership. Our holistic ESOP approach enables a positive outcome for the company, its employees and its shareholders. We believe ownership is powerful.
