EP16 - ESOPs and Private Equity - Discussion with Jason Miller

On this episode, Jason Miller (former National Director of ESOPs for Bank of America) and I explore the “Expanding ESOP Initiative” that was recently aired on 60 Minutes.  The focus of this podcast is to provide an update as to what is happening in the National ESOP space and how the ESOP initiative started.  The initiative’s work is centered around the question: “Why are there not more ESOP companies in the United States?”   Jason Miller was part of the initiative and shares some insight into the process and how this initiative is currently being developed. 

Transcript

[0:09] Hey everybody this is Lisa guy we are on a journey to an ESOP and Beyond we are in our fifth season and super excited to come to you today to talk through something I think is really really helpful and kind of probably new to a lot of people that haven't really talked through um private Equity as we go into it we're going to talk a little bit about. A program that some of the private we're seeing private equity and how they're playing in the employee ownership space. To do that we're going to interview Jason Miller Jason Miller is brand new to our team um when it comes down to the ESOP guy group and so but we're going to walk through some things I think are going to be super super helpful for you if you are brand new to the podcast. It is a resource that we've produced to really be, uh something that could be helpful as you know learn learning more about Employee Stock ownership plans and and generally kind of what's happening in employee ownership space as well. Um you can go to our website at journey to an ESOP Comm and check out all of our episodes if you're not new thank you guys for joining today hopefully it's a good day as we go through this Jason thank you and Welcome to our podcast, Thank You Phillip very happy to be here.

[1:18] Cool so so just kind of bridging you into the podcast um I know it's kind of our our tradition to jump into like what's your favorite movie and why.

[1:28] And that's always kind of helpful for people to better know you.

[1:32] So so much to choose from um but uh of those I would have to say that the the Lord of the Rings trilogy if I have to choose a story versus an individual movie uh would be my favorite um as a kid I loved reading the books what was available for for for that outlet and then seeing them come to life on screen was was uh very endearing to me uh and to see that part of my childhood become live uh and so really really enjoyed those despite some of the changes that that were made they're popular or unpopular. Right yeah and they never can make it perfect to the book but so of the 3 movies what's the favorite movie I mean that. You know putting you in a corner but it obviously fits together right it's 1 big story it really does um so I. I really enjoyed the 2 Towers more than the other 2 uh if I had to pick a favorite it was the 1 in the middle yeah. And last 1 was like oh my gosh this people are skeletons are are ghosts are coming out of the mountain right and yes everybody. Yeah cool well great well welcome obviously welcome to the podcast welcome to you know the what we're doing on the. The ESOP guy front um tell us a little bit about your your story when it comes to ESOP world like how did you get involved in the ESOP World itself. Um What attracted to you that to that space and kind of why why have you chosen to kind of transition into more what we're doing.

[3:00] Great question so my career started in in banking and Retail Banking and then uh it did a stint as a financial adviser and then came back and really worked with small businesses almost micro businesses my career continued to kind of evolve through a number of years in the commercial banking space um and throughout that time my approach to clients was really what are you going to do. Next like how how can we instead of playing a tennis match. Over I'm a bank here's what I have to offer what let's work together um and what does that mean working together what are we working toward and uh probably early on it was a matter of generating that context right so if your goals are to grow your company and then what happens when you don't want to be there anymore now what happens in that transition and then what part do I play as as a A lender as a banker as an adviser in that conversation to actually help you and and partnerum and I would say that that perspective uh led me through.

[4:07] Understanding credit and risk and its position in in that relationship and how it helps to fuel and fund uh both that that dream and and that exit. Whatever it might be and then as I started thinking more about exits uh there's there's only a few right there's limited options infinite iterations um and as a lender 1 of those that made a lot of sense for me to explore was was esops. Um and.

[4:38] Over a number of years uh worked within the organization and partners to uh to to bring together a program and a strategy for the last institution I was with to expand esops uh and our ESOP Lending Group for formations and existing companies and and and to grow that that portfolioum because it makes sense it's a debt solution to to a company uh and the the exit portion of that fit Within no that that path of mind that uh that I took as a as a professional.

[5:11] Awesome well you saw because at a National Bank level right with a large National Bank you saw a lot of the. ESOP World from a different from a lot of different Vantage points obviously from the finance side but also kind of in that sense of what's happening at those levels um how how would you describe like the ESOP like over the last couple years the trends in towards a company's looking at esops as an option how would you describe the kind of the the also the other side of things is like. How companies are experiencing that whether whether they're brand new to esops or their existing esopsso I I would say definitively the interest in esops is up year-over-year over the last number of years um and it's an all ranges there's a lot of very attractive qualities to to to undergoing employee ownership. In in general from an operation standpoint to an exit standpoint but then and and all the benefits that come along with with an ESOP transaction potentially for sellers definitely for the company either in the short or the long term and then the culture that that it it kind of retains uh and and grows along with it so there there's a lot of interest in that um whether.

[6:29] It's because of the baby boomer generation and there's finally thinking I gotta do something I have to act or whether. Things are happening to them that forced them to act and examine options but whatever the impetus is it it's happening um and really at all levels.

[6:47] Uh owners are being curious about well hey what what's out there that's different, um what what am I what is my experience what am I hearing who's contacting me uh and then what really are my options and expanding that dialogue I think is 1 of the most important things that any adviser can do is just laying those out you know what do you want to accomplish what do you what are you trying to do what would a perfect exit look like for you and as they put words to a vision then it helps to select here here's here's what I I have available to me in my company in my geography in my my company's size uh in my industry because all of those things matter to what's available to a company and they're they're being curious I think is what what spurring that that activity.

[7:35] Yeah so it's a good that's a good place to segue into the topic as we talk about private equity. Um and you're talking about like the idea of hey we have as an exit possibly and that's not every person who's thinking about an ESOP that's not the completely you know the whole thing on their mind but it's definitely something that is going to be on their mind like how many exit the business.

[7:56] When you when it comes down to it there are a couple different options when we think about like the first part of this is to understand like private Equity versus an ESOP and how would you I mean if we just took that road if I go looking at private Equity we can kind of jump bump that into like maybe more strategic sales or whatever but specific to private Equity because that's what we're going to talk about today versus going into an employee stock ownership plan route what would you say are kind of like the differences or people that are looking at at that saying hey this is the direction I want to go and what kind of advice would you give them if they're not sure exactly what path they want to go on to.

[8:32] Yeah so 1 of the major differences is the the individual shareholders what do they want to get out of a transaction and then what is their timeline so private Equity is very very good at transacting very very fast for companies that they want um and companies that they want turns out to be you know what is their fund for what are they trying to Target how are they trying to build that into their portfolio what makes sense for their their model and then what cash do they have available to do it and what leverage can they apply in order to make the most of those opportunitiesum and because there there is additional money coming into a transaction from the private Equity Group to make the purchase it offers a lot of a lot more liquidity Upfront for for a shareholder and so if the the the weight is on.

[9:29] Liquidity and personal application then there's there's a reason to explore that if the company fits the profile of of a private Equity Targetum.

[9:41] Conversely in in an Esauit's a leveraged buyout right so it's a 100% debt financed leveraged buyout, uh has those tax advantages that we talked about that may accelerate some of that repayment but you can't convert the entire Equity stack into debt and then expect it to work if there's an outside party that that's involved and so the the normal structure that I know that you've talked about here on the podcast of a a senior lender taking a chunk and then uh the the seller is taking back their note which is a common esot structure is what provides the ability for that 100% transaction to occur but those sellers are going to wait. They get something for waiting but they're going to wait um and instead of the alternative of possibly selling out to to a private Equity Firm um and that gets into deal structure some right um in that regard and we can talk on strategic too if you'd like.

[10:39] Yeah I think the main I I'll kind of stay with private Equity versus ESOP and then come into some other things but I think respective to private equity. Versus ESOP 1 of the other distinctions I would make is just the idea that who is the buyerand what's going to happen to the company afterwards I have I've had and I know you've had this too like.

[10:57] A lot of people when they get down to that some of them have experienced they've gone through the whole process. And then either right at the end or during the process they they're like this is really not what I want to do. Because what I'm doing really is going to disrupt the legacy of this company.

[11:14] And and this is really and I've always been kind of careful to say like private Equity is there for a reason and it's it's very useful. But it's not always when I look at the the ESOP route sometimes it's not the route that that an owner wants to take when they want to kind of keeping the consistency of what they've built and the legacy of that so I think that's a major distinction between the 2 things because private Equity really is going to try to maximize the return. On what they've just purchased and on the advantage that the owner gets is like they might get more cash up front like you talked about. However they also are leaving the company behind and they're not going to have a role that they would likely have under the ESOP so so just kind of the quality of the deals and the sense of what people are looking for goals and objectives are definitely distinctly different. I I I completely agree and I I think it's important to note that there there's no wrong personal choice for an owner to do what what they feel is in their best interest um and that that's something that asmany of them go through uh this process understanding what options are available what it means to them what those differences are um and and really choosing for themselves what they've earned um because they've they've grown the company they've built the company. It's theirs that that value is is is what's owed to them how they get it out and then what happens afterward is definitely a key consideration but for them if that's their goal it's not not a wrong answer um.

[12:43] And the sum of the math functions too if you think about certain industries we go back to Industry. Have very large multiples because of of what what they're in and and ESOP. Might not be able to to get uh those owners that that same multiple even over time not just upfront but but over time and when you think about a completely debt Finance transaction versus outside Equity plus some Leverage. Then the the math doesn't work for the cash flows of the company Beyond a certain point given interest rates and given debt structure uh in an ESOP transaction in in private equity and so industry is super important on what's available and also gets to company size usually the larger the company and the more sustainable and repeatable their income then the more options they have in in this iteration the last thing that I probably say in this is in the beginning it might have to be either or um or it might be a partial for an ESOP to maintain that culture to grow that company to give everyone skin in the game which is a huge huge push right now say push more movement um in in that space uh and and then growing that company with them with that benefit and then thinking later about a different exit for the whole company and we've seen that a number of times over the years. We're partial lease offs have grown and then they have made a transition either to a financial buyer or another strategic buyer.

[14:11] Uh and then everyone benefits under that structure yeah kind of like a stepping stone you know start with this and then you get to the next step which is a bigger. You know a master plan or whatever um interest rates obviously he's played. Big role in in all of this as well over the last several years right we all we've seen the interest rates climbing um the math for the private Equity guys changes dramatically when the interest rates are higher and so you know there is some changes I would say there's changes obviously to an ESOP structure transaction but not as dramatically on the private Equity site because they are relying a lot more. On financing as opposed to just hey we have tons of cash and we're just going to allow that into every company we see. Very very rate of return driven right because they they have to deliver um and that that's the way that the model is set up so Rising costs uh are are going to depress those returns uh under you know same same. Got a scenario for condition yeah so and I think I think that's why what 1 of the things I always try to tell people at the front end are thinking about doing an ESOP is is really understand the differences between these different alternatives.

[15:18] You know because you can save a lot of money and time. By not running down that road and realizing oh I didn't realize that's really what that is all about when you get down to it and so you know I think there's probably room to do a whole episode on just private Equity or strategic buyers or all of that um what I wanted to kind of segue into and transition into is just the idea of the the expanding ESOP initiative. And what that means in terms of of how private Equity is now playing a role and some of this stuff is overlapping a little bit and I know that you um in your, you know prior life to join the the our practice we're kind of involved in that and I know there's a lot of things that are probably brand new in that sense so I think it's kind of an exciting.

[16:02] Topic to jump in and explain a little bit of what that really means so we talk about expanding ESOP initiatives first off what do we what are we even talking about when you yeah so great great question thank you for the question so uh I'll I'll unpack it at by starting with the great news is that. A lot of leaders in the financial world and private Equity have taken notice of the impact of employee ownership what that means to a company and then kind of definitive results in in bottom line like there's value created. By sharingand in in that idea of if we give.

[16:40] More broad-based employee ownership to employees of companies regardless of of of where the company is and who you know the the private Equity or strategic or ESOP um esops have been that core of what employee ownership is is all about so the the performance of ESOP companies and the performance of companies that have other employee ownership plans is uh it is very definitive and that being taken notice it's how do we do that how do we do more of that um and um a number of of ESOP leaders were were were uh gathered together and kind of thought through this process on where do esops apply today where is that that marketplace where does it make sense and then how can we expand that Marketplace um because the the particular benefits of an ESOP structure are very very powerful not just financially for the owner not just financially for the company but the difference that it makes in the individual lives of those employees and 1 of the pieces of information I found Most Fascinating as we we we went through and and looked at the this work the largest disparity in wealth uh is equity direct Equity ownership.

[18:02] So those that have direct Equity ownership have more wealth those that don't have significantly less over time and as time has gone on that Gap has only grown uh and so how do we help correct that say correct how how can you influence that on a broader basis and it's utilizing the tools that are already available and the community that's already here and just expanding that not replacing it not changing and not bringing anything new except for ideas and application and so uh that you'll see in the news recently um there's a segment on on 60 Minutes a number of weeks ago uh that highlighted the value of of employee ownership and what some of those firms are doing in the marketplace with their approach to purchases and even recently there was another that announced a similar. Not approach in in their dealsbe beyond that it's again how do we make. The lives of individuals better and then as as employee or as owners as shareholders what can we be thinking about in our transition that allows us to do that to preserve that Legacy that you talked about so that everyone is better Rising tide puts All Ships yeah I think that's really so a lot of things that we're we're getting into in terms of the first off the financial Community seeing that.

[19:27] You know this is definitely a real thing right I mean it's it's not just something that. You know as we talk about the podcast there's a there's a lot of data there's a lot of Statistics that support and it makes logical sense if an employee has ownership in the in this in a stake in the business. They're not going to think the same way if they if they really understand what that means um to them.

[19:52] And their families from a long term so so it is absolutely. You know clear I think hopefully to most people that direct Equity ownership is going to lead to more wealthand when you don't have that you're basically building a 401K plan with a lot of diversification in you know in looking at the the stock market hopefully or whatever you're investing in you know to do well for you over time but it's not going to be the same thing as as the appreciation of a small Middle Middle Market company appreciating over time in their stock value so that's that's clear so.

[20:23] Um the initiative on the 60 Minutes um obviously you were kind of part of that and so the idea behind what we're going to do just so everybody knows we're going to put that link on our website at journey to stop.com so you can when after we are this or whatever before we are this you can go right on and uh check out the link but that that whole kind of. Thought leadership program collaboratively who who was involved in that like what kind of people were they private Equity people right so kind of give us like a bit a bit of the who's in the room type of thing. Yeah you know that's a great question so when I say kind of ESOP leaders it's a small community um but your your practice Executives um from sell side advisors from Banks from ESOP attorneys um valuation trustees the the folks that have been in the eso Community for a long long time and then folks that have been in the eso Community for less time but you know working in conjunction on how how in the world can can we share this gem right with with with more people and and where can can that that opportunity be foundum.

[21:39] And so it's getting getting all the all the folks together that that know as as much as anyone can know about esops and then collaborating on on what that could look like in context of an idea and 1 of the links that that um will will share will take you to a website that details the work that's been done there um and that I think that a lot of people will be excited to read not just the background information on esops and educational piece but that broader application and what it could mean to the economy as a whole. Right so when they when they and obviously you're part of the group right when they got everybody in the room. Um you know they kind of did they just kind of brainstorm the ideas behind how do you how do you leverage this idea better into the market.

[22:26] So really what was the goal what was the goal of the meeting I guess it's kind of where I'm going. That's a great question and so uh there's a lot of investment that was done in research to to, to figure out where where can this be applied and what what is that idea generate so there's a basis of an idea um you know under our proposal that you'll see on on the website as a whole but really the the meeting was we think there's a huge upside here that there should be a lot more essos why aren't there more essosum and and then how what can we agree on, in in the approach that the community takes to to expand this because there's there's no good in disrupting what works.

[23:14] There's yeah at the expense of what works for for you know a new application um and so it was it was a great working group to collaborate and say what what can we agree on what are what are our principles what are our core principles and it's uh starting out with you know Do no harm.

[23:33] Anything that that gets talked about or anything that progresses from here should not in any way shape or form. Infringe your impose on the existing structure of escort Visa. 1042 CC all of the things that we all know and love today about esops it's just more. Yeah and that that that took a lot of time and a lot of talk and then in the in the proposal uh right the detail proposals like what about this what about this idea for for C Corps Bops to attract. More buyers right and to attract a different Market um and how how do we make more esops as a community using the resources and the the talent that's in the community and I I can't tell you having that many people in the room that that many times just how.

[24:23] It was a great working group. Um you wouldn't know that there were competitors in in that that group across all those spectrums right um because of the way that the esot community works together uh so it's really a testament to to that group and to to those leaders that that brought us together for for that concept.

[24:42] Yeah um and again I hope you don't mind I'm just gonna like pick apart the meeting a little bit so I think it's super interesting to kind of think about like these types of forums where. You know and the hope is everything gets better right but the 1 the 1 thing I always. Is always on the emperor's mind is like why I think there's 7,000 esops in the country right amongst. How many bill you know companies in the United States right and so what what were some of the reasons that you picked up on. That they said hey why are there not more esops just in general. Some of that was in the research that was done by the the leaders right and so few people know what an ESOP is.

[25:23] And I I I think that the statistic is of the research pool or whatnot that that was done like 3% of people knew what an ESOP wasand then. Uh Phil if you've done 5 Seasons you're in 5 Seasons of the ESOP guy with all of those topics it's very complex and it can be even more complex and 1 of the things that I said early on was limited options infinite iterations.

[25:51] If you think about every deal that you've worked on every deal that you've been through every company that you've seen afterall of them are different. Fundamentally the same but the percentages are different the Strategic goals are different. The application of what how they use the programs that's available under that are different. The Leverage component that we talked about in the beginning and then how they deal with, dilution or non-dilutive options to continue to incent people to grow after the the transaction takes place and there's so much complexity. Under the structure that it it turns a lot of people off if they don't approach it with an open mind of I'm just curious I don't want to shut it down after oh it's complex it's expensive um it's weird or it doesn't apply to me because I'm. I'm an LLC um and it says craps and so I'm just going to not explore any further, and so that that has a lot to do with it um and if you think about the governing bodies right so you've got odisha the Department of Labor and the IRS.

[27:01] Tell me how many other structures all 3 of those folks are in from an elder ship perspective.

[27:06] No none right yeah I think that's where I've always been like I'm. You know like learning new things and all that and I'm always been intrigued but I I think it's interesting how they are all involved however.

[27:20] If you break it all down to its fundamental pieces and you just take 1 thing at a time it's complex but those each of those pieces are not so complex and I think the biggest thing I've always tried to do is, is is get away from all the terminology and jargon. That it's like anything like if I'm a tax professional and I talked IRS code sections I'm probably going to lose most of the people in the room because how many people are reading the code right nobody. Rightbut they need to understand what it means so it's not like it's not like hey here's the code section but here's what we could actually do with this so everybody understands bonus depreciation because they do it every year it's easy to understand right but that's all complicated code section it's not that's not simple so I think the same thing in the ESOP Community I've always hoped for is that. That the professionals start using language that's a lot more. Um simplified and reduced down to what is it really do instead of hey look how smart I am that's more me criticizing the community but look how smart I am because I can tell you about this this and this and maybe lose you in 2 seconds right and that's really the the focus of the podcast is to is to reduce everything down to what what it really means when you get down to it. Um but I think it's super helpful, to think about like I do think there always should be more and I and I agree with all the things you came up with I think education is always a big 1 um it feels more complex the expensive stuff I mean I think that's a that's an element we've talked about a lot.

[28:48] But when you when you kind of gravitate to the newness of this when you think about expanding um and I and we kind of started off with private equities in this Lane esops are in this Lane correct like here's 2 separate paths.

[29:01] Are are you guys were they looking at the the kind of the hybrid version of that like how do we how do how does Private equity.

[29:10] Because we kind of identified the fact that they the financial Community knows an ESOP company is is a successful typically a successful company because the employees are like they get it right how does the private Equity World merge into this without creating the worst part which is what was a pure ESOP right like we wanted to have control over what's happening and all that so. You know I can see like the stair step like we have this piece and then private Equity comes in and blows it out alright are you guys talking about a hybrid version between the 2 things overlapping great question so everyone loves a 100% s-corp esops because no 1 likes paying taxes. Right so the structure is the structure is amazing um and the if you earlier on I talked about the range of companies and what makes you know that certain ones are going to be more attractive and have more options the larger that they are and when we talk about an ESOP structure being 100% debt Finance leveraged buyout then we talk about private equity and their model of a rate of return and then capitalizing that on a on a specified period of time usuallyum it doesn't always converge right so the the higher the multiple the less likely an ESOP structure works because it has to be financed with debt. The community the the private Equity Community can't operate on taking back seller notes to make sure that there's enough senior debt.

[30:35] To spin off a company or or to allow it to move on to its next stage or its next phase and then when you're in that that area of larger companies multiples are going to be larger for for. Short for those companiesand so that combination is like well how how can you make that work and that goes to look at a core ESOP structure and then how how does that possibly open upcertain ideas around utilizing the benefits of an ESOP in a partial structure to attract. Outside money so it's not going to be a 100% ESOP but a partial ccor ESOP is that the the idea so that it attracts outside money and allows large companies for large multiples to utilize the benefit for workers for the company and all Financial interests and so it's really kind of a cohesive approach centered around the idea of getting everybody to the table. Mhm. Okay so let me look at like the the reduce it down to like what what that could mean so let me just give you kind of my thought case study kind of thing you have a company that has a very high growth.

[31:51] Platform for the futureand we all know Finding and finance high growth means they're going to run out of cash because, clearly you know double digit growth or or even triple like it's going up like crazy right.

[32:04] So the idea behind this is hypothetically this company. Maybe want to maybe wants to use the ESOP as a partial like a core partial ESOP sell a portion of it. So now we reconnect the people into the whole ideayou send that money to get some of the chips off the table at the same time use it to raise some capital.

[32:26] Yes so here's in here is where the the next phase comes through so so let's just say you do the transaction they sell a portion of the company they're partial you know Corp we can use 1042 and all the other stuff but but the the real play is how do I do that and then get that company the capital it needs to fulfill and fund the growth. And then at that level the private Equity guys will probably take it and sell off the whole thing and the employees win because they they get to be part of the ride as opposed to being left in the dust. I I think that's a pretty fair assessmentso so let's talk a little bit about like this is where um.

[33:06] You know like let's just say you have your your company that is looking to do that let's just talk about the Practical thing of like how first off let's how number 1 is it a good idea like that's always some people are going to just ask the question should I do that you know or should I you know what's the what's the advantage there versus having a private Equity company because come in and blow it all out now right.

[33:29] And those are questions that absolutely should be asked um and the the the structure uh idea call it the idea right because it's a working ideaum on how how to utilize those benefits to attract those players and it's how how do I get growth capital and how do I get institutional money in. And I can't do that right now under today's ESOP structure because it just doesn't make any senseso you're basically raising. The the marketplace or the population of eligible companiesunder the structure because it would attract the right Capital at the the right investment in the right irrto allow that to go to the next stage or to grow while also the the the goal and both both the goal in the byproduct is rewarding workers so it's almost it grows it from the top of the range of where an ESOP makes sense today upand out, and then it leaves room for the the the existing esoc community and those companies that it would be good for today without changing anything back to those guiding principles um what do we want to accomplish as a group that has to stay we're only building the top end and then building out.

[34:45] Cool no I think it's really a good topic because I think some people would never probably thought about this until they listened to this but. 1 thought I have is like I always try to categorize like what's in it for the shareholder what's in it for the company what's in it for the key people what's in it for the employees when you get down to it so if you think through this and you think just this the the conceptual side of this. We're going to use the. We go esap partially CCP right we're going to use that to to raise Capital so that's the whole at the endgame is really to raise Capital when you get down to it too because we have a growth company they're going to.

[35:17] What's in it for the shareholder to do that structure.

[35:21] And what are the risk to the shareholder like let's just say they don't hit the growth numbers they thought they were going to hit what's kind of what are the risks and what's in it what's the risk-reward for the shareholder. Great great questions um so if we think about the employees first. Right let's think about about that so there um. Their financial value is is on that same trajectory and and it's aligned just like it would be with any ESOP company. Um and the the tax benefits or ramifications of an ESOP structure uh are are 1 of the the attractions for for that alright so first recognizing the power of people and that if we were able to to to capture. That that element within this structure then they get an outsized benefit in comparison but we get our irr. In in the structure so when when you take a look at the proposal in detail and there are a lot of deep Dives in there and encourage you if you're interested to to read it it's really fascinating on why it makes sense that what's driving the boat.

[36:37] Is empowering workers and rewarding workers and that produces that all of the access. And all of the upside for an alreadyan already incredible business that's producing those returns that could trade at that multiple.

[36:55] You're you're thinking about very successful companies with very large Financial wherewithal. That may be tracked in inside of a larger organization that may you know be trapped in a certain industry that can't go anywhere else without something that and impetus a catalyst and the catalyst is.

[37:13] How we how we get equity in the hands of workers while attracting Capital while while growing to the next stage. Yeah well what I like about it and this is where I was thinking um you know I think it was a very good like your point was really good like could focus on the employee side because first off there's there's never been a time like this where it's so hard to hold on to people. And you know retain and send them that's 1 of the reasons I think esops are becoming more and more popular. Um and 1 of the 1 of the criticisms of esops is how do you how does it really attract a younger Workforce because younger people maybe don't care about the retirement as much as obviously somebody that's older um but in this in this structure what I like about it what I would say is that I like the idea that I think it could attract younger people.

[38:01] And it could also be a real strong element for the key people that you know you're wanting you're wanting to keep people to get really super excited about it and which we're using all kinds of tools to do that the SARS and different things like that but if the key people understand like this is this is. Capital that's going to be raised. To get to this next level everybody wins in that because there if if everybody's focused on the maybe the more of the dollar side of things as opposed to a 100-year company.

[38:29] Then that that could make sense I think that could really resonate with and then the shareholder wins because they're able to get some chips off the table get the company to the next level then participate in the next deal plus they bring their employees with them and everybody it should be in my mind it's always gonna like I always want the win win win win so I always want that across the board and I always feel really bad if if I start looking at something and it's a win loss.

[38:53] And I think that's honestly 1 of the things that I've seen in just pure private Equity is that the employees seem to lose.

[39:01] You know because the company doesn't M doesn't matter anymore they're going to just sell it anyways and eventually the the employees just kind of loose because they're not really participating so what I like about this is there's a way to connect the dots between some of the things that that don't work wonderfully for esops which is how do I keep these young people super excited about future and so. For sharing that with them like you know great I mean maybe that will happen right so.

[39:27] And the hope is that that structure would continue in the next iteration of the next buyer so those employees can continue to grow along with with that company what whatever its end state it ends up being but you bring up a very important point which talking about the generations of of, different generations of people within ESOP companies and the the meaning of the benefit and how that gets communicated what what's tangible and what's not um and I'd say that in the last couple of years that that's become a very highly discussed topic and it was part of this working group as well how how does that. How do we help that segment of the population with all that they're under to to be successful under this how does it address that.

[40:12] Yeah so and it's so I think it's something that the only let me as I think about this as the only negative if I'm the guy who's in charge of all that. 1 of the 1 of the major thing gets talked about too just from a shareholder perspective where they are inclined to go an ESOP. Is they have a lot of control in the governance and they're not like they're not having to deal with. First off like if you just take personalities wise like some some companies that are run by people that have done this for 30 years they're not really wanting to listen to another. You know strategic partner. Right in this scenario I think that has to be dealt with at the front end and and I think people have to realize like.

[40:56] The raise Capital you're going to deal with a a financial partner you know and the financial partner thinks like a financial person and it may not be. That may be a deal killer for some people but you're gonna have to get over it and and um or or know that it's coming that way so it's not it's not the same old. Traditional ESOP where hey you're going to be on the board you're going to have independent board member you're going to have a lot of control over governance so the question and the comment and then the question is more like. From your perspective how does how does somebody what what should their expectation be.

[41:31] And maybe it's a third let's just say it's a 30% ESOP non-controlling you know percentage Cort partially stopped now they have a private Equity partner. Um when I like do a 30% ESOP but then they raise Capital right that debt is that debt or is that equity.

[41:46] So great great distinction for us to kind of unpack and so I I I don't think that this particular structure is going to lend itself to most individual shareholders or kind of the normal say normal the regular population of of shareholders that are exploring esops as an option as an alternative to private Equity more if we think about. I know here locally um we we have a large publicly traded company that's had a number of spin-offs. Uh that have been their own their own company right and a majority of the time there's a lot of Divisions that probably don't belong with the core values of a large company. That would be better served if if they were on their own but the mechanics of how that gets divested who's interested in supporting that divestiture who benefits from that destitute and then what are the tax ramifications for the owner and the divested company.

[42:41] And if it's just constantly plugging along as as a going concern that that's spinning off cash that rolls up even if it's not aligned why would they go through which is essentially a zero basis divestiture and then have to pay cap gains on that uh on that transaction so if we think about that population that's not 1 today that esops are eligible for but under this this this proposal this idea it would open that to a tax efficient way of getting the employees that are there their stake in that transaction while inviting equity and institutional investors private Equity debt other capital in into the transaction to make it work at a multiple that makes sense and so you have that employee base that would never benefit out in an outsized way before. That suddenly has a stake in their division in their company and if you multiply that across the the larger companies that are here in the United States there's a huge Market where there just wasn't an option before so I look you know, that's totally my Paradigm just changed like literally I was thinking because I wasn't thinking about that right that that's a whole Market that's not been um.

[43:57] In the esap focus at all so well I I love what you're saying because I think it's like those are companies that like yeah this would be a great option you know because you're going to use the tools to get through otherwise what are they going to do right they're going to raise Capital um by you know by the normal approach right give up a lot and the employees don't get anything so this that makes a lot of sense to me.

[44:23] So well we're almost out of time um anything else you want to say I guess about the expanding ESOP initiative or you know for people to learn more we're going to send some stuff on the website anyways for people to to check that out but anything else you want to kind of talk about relative to the to the uh meeting that you guys had and all the things are coming next you know a a lot of credit goes goes to the the leaders that organized that that that that those events those conversations ongoing conversations um in in that effort to support employee ownership um and I would encourage everyone I hope that I did it justice today in in my trying to explain through with your questions but I would encourage everyone to follow those resources. Kind of Catch the Fire that you'll see on on the segment um that that was published and then dig through the Deep Dives on the website and if you're curious reach out through the website um I think you'll find a lot of really useful information there.

[45:21] Um but again I'm I'm very excited to be here very excited to be part of this team and helping to bring the concept and the idea of employee ownership to everyone who wants to explore it and so your first question on what's Happening like what is it popular is it is it increasing and it is and it's a very it's a great place to be. Um and if you have questions just just ask them um and and remain curious for yourself and for the community at at large because as as those leaders have demonstrated we're better together and working toward a common cause and all of that goes back to those pieces of how complex it can be on an individual basis and what it means to you which is really important but but explore that be curious and and participate and put your voices behind.

[46:10] Awesome good thank you Jason I appreciate it for everybody else listening today thank you for listening um check us out at journey to an ESOP cam. For this episode and then for all the information we just shared with you that'll be on that on that website so have a great day and we'll see you on our next step on this journey to.