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V O L . X X X I N O. X X I V § 2 O C T O B E R 2 0 , 2 0 2 5 12 "What we found unique about the Zachau Transaction, and our ongoing relationship with them, is the thought- fulness that Jeff and his management team have, not only for the ESOP pro- cess, but for their employees as well," Pfeiffenberger says. "eir culture is really one that speaks volumes, and it was a great opportunity to be able to see that in action." Keeping culture intact As with all ESOPs, employees gain greater governance, but management structures remain in place, allowing day- to-day operations to continue with- out disruption. is is exemplified by Jeff Zachau's continued role as CEO and Drew Wing's position as Zachau Construction president. e Zachau team was very inten- tional with their actions and took three years to do research that strategically aligned their long-term goals with the ESOP process. After identifying the path forward, the actual transition was smooth and efficient. Unlike some companies, Zachau Construction's third generation, Charlie Zachau, is actively engaged in the busi- ness. "e company was of a size, and the operations were complex enough that we wanted to ensure that we had a core team that could help transition the company, and the ESOP model provided the best opportunity to do that," explains Wing. e firm encountered no signifi- cant challenges during the transaction, thanks in large part to the preparation they had done beforehand. ey also fol- lowed the suggestion to inform employ- ees early in the process. Jeff announced the plans during a team meeting, and the employee ownership plan was well received. "Our advisors suggested sharing our intentions early which aligned with ESOP culture. If we can trust employees with the company then we can trust them with early infor- mation," Wing says about the lead- ership's transparency. Even with such a positive expe- rience, Wing recognizes that transi- tioning a 56-year-old company was a momentous step for the Zachau family and carried an emotional component. Zachau's employees were already a committed workforce before becom- ing employee owned, but now there is a deeper sense of pride in owner- ship, Wing says. is shared invest- ment motivates employees and ensures that both the company and the com- munity benefit by keeping jobs local. Although the ESOP is still new, the company is already setting stra- tegic goals for the future. While honoring a 56-year history, "we are sure [the future] includes sig- nificant growth that is geared towards the needs of our clients while allow- ing our team to grow. For our team to grow, we need to create more oppor- tunity, meaning we will be taking on bigger and more complex projects," Wing says. Since its founding, relationship building has been central to Zachau's mission, making the ESOP model a natural fit for a company that values culture and is committed to keeping its team intact. "Some people think that becoming an ESOP can fix your company's cul- tural challenges. I do not see an ESOP as a mechanism to do that," Wing says. "If you have a strong culture, an ESOP can work really well, but it should not be looked at as a solution to cultural challenges; those need to be addressed beforehand. For us, the ESOP structure made our existing culture even stronger." S l o a n e M . P e r r o n , a f r e e l a n c e w r i t e r, c a n b e r e a c h e d a t e d i t o r i a l @ m a i n e b i z . b i z » C ONTI NU ED FROM PR EVI OU S PAGE P H O T O / C O U R T E S Y O F Z A C H A U C O N S T R U C T I O N Drew Wing is the president of Zachau Construction, a Freeport- based ESOP. A n ESOP is a powerful tool for those looking to exit their business, but it is not the right fit for everyone. Here are 3 things that we have found to be crucial to the ESOP decision: 1. Know when you're ready We have found that an ESOP-owned company takes 5 to 7 years to buy out the former owner (i.e., pay off the for- mer owner's seller note). Although you will no longer be the owner during that time, you will likely maintain your role as the head of the company and be sig- nificantly involved as a manager. Stay- ing on as an employee also allows you to be eligible for ESOP allocations. Unless you decide to finance a por- tion of your seller note at closing with a loan from a bank, your seller note payout relies on the continued suc- cess of the company. e company's income pays off your seller note. at income also determines the value of the ESOP equity for employee-owners. at means, for that 5 to 7 year period, everyone is fully aligned that the com- pany must do well. e better the com- pany does, the faster you can retire and the better for the employee-owners. Your involvement can taper over that time, but there must be some- one to step into that role. at's where succession planning comes into play. 2. Figure out a successor The heart of the ESOP is the employee-owners. As you transition to a less-active role in the company (normally after 2 to 3 years), someone (or a group of folks) must step up to take your place. ESOP or not, hav- ing a successor secures the future of the company and protects your leg- acy. It also secures the value of the ESOP for the employee-owners; when you inevitably exit, the ESOP value is contingent on the capabilities of your replacement to run the company. e ESOP rewards loyalty and capability: your employees obtain ownership in the company over time, but stock allocations are ultimately determined by wages (productivity), tenure or a combination of both. e ESOP is built to incentivize the best and most loyal members of the team. e ESOP makes sense only if you value and trust your employ- ees to run the business. If that future leader is not internal, don't fret. e ESOP offers an attractive benefit for an external hire: the new leader will obtain ownership in a success- ful company without having to pay anything for it. 3. Invest in education A notable benefit of the ESOP is the by-product of employees thinking like owners, which they now are. A client of ours told us that after the ESOP, employees started reusing supplies in the shop instead of running to ACE every day. is is small, but every penny counts. An ownership mindset is the most powerful aspect to the ESOP. e ESOP is a complicated and con- fusing transaction, so employee edu- cation is crucial to reap the full ben- efit of that owner mentality. We encourage clients to form ESOP committees to create pamphlets, plan family days and host employee education conferences. It may seem daunting to get started, but once a few employee-owners truly under- stand the benefits they are getting, they are normally more than happy to participate. Actually, one client of ours told us they must hold elections for the committee positions, as they have too many people interested in joining. (Hint: the folks that step up to be part of the committees may be good future leaders of the company!) e ESOP is a powerful tool for exiting your company. Having your timeline, successor, and employees in sync ensures a bright future for your business and the people who helped you build it. Thom as Fly n n , COO and managing p a r t n e r , a n d S t e l l a N e v e u are with Bellview Associates. B Y T H O M A S F L Y N N B Y T H O M A S F L Y N N A N D S T E L L A N E V E U A N D S T E L L A N E V E U 3 key considerations before converting to an ESOP H OW TO

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