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V O L . X X X N O. X X I V § 2 O C T O B E R 2 1 , 2 0 2 4 14 H ow does the payout work for the seller? The answer is complex, says Susan Scherbel, founder and CEO at Ellsworth-based Bellview Associates, an ESOP consultant that is itself employee-owned. In a non-ESOP sale, "You could simply come up with some mecha- nism where you sell the business to a group of employees or to a group of managers," says Scherbel. "The problem is — and this is where the payout comes in — that in order for that to happen, if the group is not bringing money to the table and is just relying on how much the company makes, you have to use after-tax dollars." Say the company is valued at $5 million. A non-ESOP sale would be subject to combined federal and state taxes of 45%, meaning that, in Maine the company would have to make about $10 million in order to pay half in taxes and half to the seller. "That's almost untenable," says Scherbel. "It's possible. But once someone does a deal like that — and we see a lot of that — they're the walking dead. If some- thing happens — say they find a superstar they want to hire or they need to invest in something — you can't do that. All of your money is going to pay debt or taxes." By contrast, an ESOP sale gets a pass on federal and state taxes and the company gets to keep the $5 million. "That is the magic sauce. That allows you to pay off the owner," she says. "It's like the government is saying, 'We're going to pay half of it for you. That's why so many of these deals get done." ESOP ownership allows the company to retain a strong cash flow and allows employees to pay the seller without incurring per- sonal obligations. Without the tax obligation, the payout to the owner can take half the time compared with a non-ESOP sale. In some cases, the ESOP ownership bor- rows money from a bank to finance part of the payout to the seller. "I've seen deals where the peo- ple get bank financing for over half of the purchase price," Scherbel says. The payout: How it works on the front end B y L a u r i e S c h r e i b e r P ROV I D E D P H O T O / C O U R T E S Y O F B E L LV I E W A S S O C I AT E S D ecades after founding Mainely Tubs in 1978, Jim Van Fleet transferred ownership of the Scarborough-based hot tub, swim spa and sauna dealer to all of the company's employees in 2016 via an Employee Stock Ownership Plan, or ESOP. "Rather than just selling the business to another par ty, he wanted to find a solution that would reward the team members who had helped to make the busi- ness such a success and ensure that his customers would continue to be taken care of," explains Jared Levin, the company's presi- dent and CEO, who leads 125 employee-owners. Today, Mainely Tubs likes to have two people identified as potential successors for each management role and is already working to pinpoint a team ready to take the reins in 2027. ProSearch, a Portland-based recruiting and staffing agency founded by President Ed McKersie in 1994, became an ESOP in 2017. "A few years earlier, I began to think about how I could transfer the company to the employees who had been so instrumental to our success over the years," says McKersie. After looking at other options, he saw the ESOP route as "the best way to accomplish my goal of selling the company to the team." When McKer sie eventually retires, there's no plan for one individual to step into his role. "I have found it more important to try to empower several people to take on a more active lead- ership role, so decisions aren't made by me as much as before we became an ESOP," he says. "This is part of building an ownership culture." Succession planning also drove Landry/French Construction to become an ESOP in 2016. "We felt it would be great for employees and provide them with another retirement source," says Kevin French, chairman and CEO of the Scarborough-based firm founded in 2010. "Some of our employees who have been here since the start already have six figures in their ESOP account." While French has no immedi- ate plans to retire, he's looking to make a few leadership changes to provide more flexibility with his schedule as he spends more time in Florida following a recent acqui- sition in that state. As for his even- tual successor, "I would prefer to promote within and feel comfort- able we have the right people," he says. Succession planning top of mind for employee-owned firms B Y R E N E E C O R D E S P H O T O / T I M G R E E N WAY P H O T O / T I M G R E E N WAY Susan Scherbel, founder of Bellview Associates, an investment firm that has worked with the majority of Maine companies making the conversion to ESOP ownership. Kevin French is CEO of Landry/ French Construction, which has had an ESOP ownership structure since 2016. Jared Levin, president and CEO of Mainely Tubs, pictured at the South Portland headquarters.

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