One benefit of Employee Stock Ownership Plans (ESOPs) that should not go overlooked is how they can help companies grow. Not only are ESOPs powerful tools for recruiting and retaining top talent, but they also empower companies to make strategic acquisitions that help them become market leaders in their fields.
ESOPs help companies make strategic acquisitions in two key ways:
- S Corps with ESOPs can reduce or even eliminate their state and federal income taxes. Those savings mean ESOP companies have more cash on hand to fund acquisitions.
- Companies prefer to be acquired by employee-owned firms.
TDC President Regan Stephens specifically cited IPS’s ESOP as a reason they chose to sell to IPS, rather than any of the other companies that were interested in acquiring them.
Business deals are rarely win-win. But when ESOP companies make strategic acquisitions, it’s a win for all parties involved.
Being acquired can be a frightening prospect for workers who are fear their jobs could be jeopardy or their company’s way of life will radically change. Those are the same fears that lead many business owners to implement an ESOP in the first place, rather than letting their company be consumed by a larger entity. But for many businesses, being acquired by an employee-owned company is an ideal scenario.
For a perfect example, look to Paschall Truck Lines. Their parent company, Interstate Personnel Services (IPS) has been 100% employee-owned through an Employee Stock Ownership Plan (ESOP) since 2013. This past July, they acquired Missouri-based dry van carrier Transport Distribution Co. (TDC). TDC President Regan Stephens specifically cited IPS’s ESOP as a reason they chose to sell to IPS, rather than any of the other companies that were interested in acquiring them.
“The fact that our TDC people got to become part of an ESOP was a great benefit,” Stephens said. “The reasons that make this right for our people kept piling up.”
TDC’s employees will become owners, able to participate fully in the ESOP. Rather than having to worry that their jobs are in danger, they will now be part of an employee-owned company, which means enjoying a culture that prioritizes protecting jobs and keeping them local. They get all the retirement savings power that any other IPS worker enjoys. They even get the peace of mind that comes from knowing that their company is more likely to stay in business and keep their jobs intact in the face of a colossal challenge like the COVID-19 pandemic.
And because TDC will operate as a separate entity under the IPS umbrella with their own continuing leadership, none of details of daily life at TDC will change. Even their branding will stay the same (although they perhaps they might add “100% employee-owned” to their branding, as many companies proudly do). Their culture won’t disappear; it will only improve now that their employees get the pride of ownership that comes from having a genuine stake in their company’s success.
TDC had been family owned since its inception in 1984. They were open to being acquired because some of the family owners were ready to retire. There are countless businesses across America in similar positions. And many of the owners of those businesses share TDC’s mindset that if they are going to be acquired, the best case scenario would be to be acquired by a company that will take care of their employees, give them better benefits, and keep their legacy alive. In short—they want a strategic buyer with an ESOP.
Want to learn more about how an ESOP could power your business’s growth? Contact the Menke Group to schedule your free preliminary analysis today.
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.
