This episode is super helpful for those that want to learn from someone who has taken his own “Journey to an ESOP” Mark Stevens is the founder of Georgia Spa out of the Atlanta area. Mark’s company went 100 percent ESOP. He shares on the podcast his experience with the ESOP process.
This episode is super helpful for those that want to learn from someone who has taken his own “Journey to an ESOP” Mark Stevens is the founder of Georgia Spa out of the Atlanta area. Mark’s company went 100 percent ESOP. He shares on the podcast his experience with the ESOP process.
[0:11] Everybody this is the ESOP guy we are on a journey to an ESOP I'm so excited to publish this next podcast.
This topic today is is in the category of ESOP experience so actually interviewing a client who went through the whole ESOP process I think it's really valuable for people, to understand like what what what the companies think what the shareholders think as they go through the process so that's what we're going to do today, if you have questions about Aesop's go to our website at journey to an ESOP.com.
And if you like the podcast please rate and review it on apple or whatever media that you're using, and so with all of that we appreciate you joining the podcast listening today if it is your first time thank you guys for joining and we will, get rolling So today we're going to interview Mark Stevens he is the chairman of the board of a company out of Atlanta called Georgia spa and Mark had gone through his transaction just recently but I wanted to say thank you so much for joining today.
[1:12] Yeah I appreciate the chance to give my tell my story and talk a little bit about Aesop's that I didn't realize a few years ago I've been this excited about an ESOP but I'm very excited to share my experience and.
And just what it's done for me personally and our companies though thank you for having me all right well as we get started mark it will be helpful for everybody to know what is your favorite movie and why as part of our normal Icebreaker.
[1:36] You know there's a lot of them but I think recently Band of Brothers is not not really movie but a series I love Band of Brothers and had a chance recently to go to Normandy and sort of see some of the towns and.
In the end the way that 101st Airborne Division landed jumped into Normandy and and how that whole thing came together so that was, great movie and a great story and it's just that purpose history and perspective so I think I'd enjoy I think that's cool I think it's hard I think is great for those kind of movies because it helps us to remember what people paid the cost of freedom and, and it has a little bit more meaning it's not just pure entertainment right it's like it means something for us as you as American so.
Well cool and now you're traveling to because you sold your company as an ESOP so you're having I know you're having a bit of fun traveling around a little bit so so that is that kind of part of as we start the story of your ESOP, were you were you looking to kind of get out and travel a little bit more or do you feel more freedom now that you've done it.
[2:36] You know I don't know if it was the the travel thing we've always done it myself and my wife have done a lot of traveling over the years but, that's definitely a benefit of it but I think I was just looking for a great way to transition the company.
In that waiting till I was in my 60s or 70s to try to either look for an egg ethic strategy out of the company and I think this was, the right time the right place and it gave us the opportunity to do some other things and.
I'm not totally disconnected with the company so I'm still the chairman and that gives me a chance to keep my finger in the pie a little bit but I don't have to be there day to day and I don't have to do the things that.
I was doing for and I guess it gives me it gives me peace of mind that I know was coming over the next seven to 10 years I know where I'm I'm at and what my retirement looks like and I think that's, valuable for any business owner so yeah it's kind of kind of a freedom well so so going into the business let's go through kind of like how you start like you started the company what you guys do just give us a quick synopsis of everything actually I'm to John Deere store for a number of years.
Got out of that business and went to work for a manufacturer and didn't really like that too much so.
I decided I was going to jump back in the retail business and was looking for a product that I could sell the people wouldn't be stressed about.
[3:59] And hot tubs came to mind and I think nothing about hot tubs I knew nothing about the industry but I said you know what I know how to sell product and I know how to present product.
Open a small store.
In 2004 a very small operation didn't realize the industry was starting a downturn especially with 2007 2008 with the what are we want to categorize at the recession the Great Recession or depression or whatever it was.
But we were so small and had no debt that we just continue to grow and we stuck continue to take other people's pieces of the pie.
[4:33] And grew it into you know six store multi-million dollar business that you know and now service retail.
We have you know five delivery teams and, yeah probably 15 service techs and Valley text and just it's a big operation now so it's interesting to go 50 you know well 18 years later and see what it's really done.
Now it's a huge success story and when you think about selling hot tubs it's not you know.
I mean I'm kind of interested in like choosing that I know you said it was kind of like one of those products that people don't really stress about obviously it's the ant it's the thing you get into to not stress right.
So going from John Deere to hot tubs how did you actually select that as your product did you just see there was a demand for that or would you just like running funny story so that when I sold my John Deere business I bought a hot tub, okay yeah and we were sitting in the hot tub one night and I said you know this is this is a product I could sell like this is, people aren't going to get stressed out over there over there hot tub if something breaks and they need to get it repaired just.
[5:41] Um you know we I knew brick-and-mortar I didn't know you know internet was still in its infancy as far as online selling and that point.
And just knew I wanted to be a specialty retailer.
We wanted to get back in that business and a lot of people looked at me and said why are you doing that but you know I think I had a great we had a motto back then I think we still carried a little bit today when service and quality count.
And I think that's what people look for they want to buy sir great service and great quality and they'll pay above and beyond to get to get that and I think that's what we brought to the table that a lot of companies did not.
Now I think that in knowing your story I know that's a big key to your success.
But in your industry is it is it kind of common to have that kind of growth that quickly I mean 18 years is not really that long no it's not very common we're going to the larger.
[6:38] Retailers in the hot tub industry and I think it's because we brought a different mindset we brought a growth mindset to the when we started the business we knew we wanted to grow we want to continue to grow.
And.
You know right or wrong I think a lot of people get into business and just try to figure out how to survive how to make some money and survive we knew we could do that because of our past experience but we knew we wanted to take it to the next level.
And I think that's what drove was for a number of years yeah yeah so so in thinking about that part of the company.
Went first when did the ESOP come to mind first for you I mean how many years ago was it you thought hey that would be a good way to go.
You know it's probably been feel probably 33 years ago maybe a little bit longer had a good friend up in Maine that had ESOP his business in 2016.
Had had discussions with him and to be quite Frank with you it was way over my head it was the skill and knowledge set, the lingo of an ESOP you know he would throw a lot of language out there that he assumed everybody knew what he was talking about and people just like I'm good man I'm just lost yeah I lost.
[7:52] But I knew I need if I wanted to have this as a viable option whether to sell to a private Equity or an individual or whatever our decision was to when we.
Exited or had exit strategy.
I knew ESOP should be at least consider but I knew I needed to educate myself on the ins and out of it and we started with going to conferences we joined the in CEO and and we decided we were going to go and.
Get a little education and you know meet some people and.
I quickly realized that it was such a small knit group of people that are in the in that industry and, you know it's just started meet some great people including yourself that yeah you know I've always done that in business and I'm not the smartest guy in the room but I know where to find the smartest people hmm I think that's what helped us get to this level where we decided we wanted to ease up the business, well now and now you're an ESOP expert so, you know I wouldn't say expert well yeah I know you know a lot about it for sure so what was the so a lot of people they listen to this and the thinking about doing possibly doing an ESOP.
Whether it's this year or next year or five years from now what was it for you what was the Catalyst for you to pull the trigger on the sap when you did you know what was the main decider for you to come.
[9:15] I knew I didn't want to be I knew there was going to be an exit Runway to get out of you know to sell your business or do whatever I knew that, I didn't realize you know what that was going to be but I knew it was going to be at least three to five years I didn't want to, I didn't want to be 65 and start the process so I knew I wanted to I just turned 56 and I wanted to, you know have a plan for the next 10 years now I when we got into the ESOP process I realized you know hey maybe we go ahead and do it now and then we you know see where it takes us but, um I don't think there was one thing there was a lot of change in the industry in our industry.
Some some private equity and some public companies that jumped into the to the.
[10:02] To the acquisition process in our industry which had never happened to the level that it happened probably in 2020 2019 2020.
You know I think that started me thinking that if I'm going to do something.
[10:14] You know I need to start thinking about it quicker rather than later so yeah well and quite honestly when, I was afraid the ESOP process had scared me because I didn't understand it either when I when I started to realize the process and the lingo and the and all the things that came to be.
I realized it was the right time it was the right you know I hate to see I've got a lot of friends that are that are older.
They have no plan for exit strategy and you know it's it's a shame because they built great businesses, but then they have no Legacy or no word of handed off the good and that was the other part of the ESOP for us is our culture is a little different in our company than a lot of our peers out there we wanted to.
[11:00] Keep that culture we had built a great executive team we have built great management we had great employees that were engaged.
And I thought you know long and hard because I could have easily taken a check from a investor in sold the company.
But I thought long and hard about where was the company going to be in 10 years 5 years 10 years and, I thought this would be an it better for the not only for the company but better for me of my peace of mind what I live yeah you know it's going to that was well is going to ask you is like you have this a lot of people in your shoes at.
Look at private Equity or strategic sale versus the ESOP and they're you know and they're kind of looking at that like well what's this the pros and cons here the pros and cons there and I think you spoke too.
Really a lot of things like your culture the people that you had you want you didn't want to disrupt their world and and then what you guys built and to be honest with you.
[11:54] Pretty amazing your processes are pretty amazing all that.
Has gone into it so with the ESOP you felt like you could keep that intact at the same time you know still be kind of part of it too you're not just like selling and leaving, so right right and there's it would but my number two person had been with me since the start he was my first fire.
[12:16] And I felt like you did was just some.
Not commitment there or obligation there but just something that I wanted to leave for the people to help build the business I think they have a great opportunity now they're built a lot of them are Building Wealth that they didn't know was even possible, if you know the thing too is when we got into the process and realize that.
The either either through banks or how this whole thing is going to play out and hear how I was going to get my money, and stuff like that you've got to be willing to take some risk right we didn't go with the bank option we went with a cell phone answering option, because we saw the reward there and I have so much confidence in the team that we built over the years, and or management that I didn't think there was going to be an issue with it I didn't you know it, I felt like there was a small very minimal risk to me whichever option I went to so yeah that's a good was very confident in it's a good point we'll talk about we'll talk about the financing I want to make sure as we make sure everybody that listens and understands like this is 100% sale of an ESOP.
[13:22] Mark didn't sell a percentage or a smaller percentage of these sometimes people are looking at that as a stage transaction Mark went ahead and went from 0% to 100% in the sale.
And so in that we did make a choice between you know having some Bank financing or having it all seller financed and.
What did you see as some of the benefits to just taking on the Note yourself I know you're taking the risk you're the lender to the company.
But from a benefit standpoint what did you see are you for yourself great question feel we you know we me and you discuss through this that nauseam I think said probably probably for you is it nauseam for me was like I get this break my head yeah but you know the fact that.
[14:03] It was only going to be a percentage of the sale that was the bank was going to finance it wasn't I don't remember what the exact maybe 20% but roughly 20% yeah, and for me I was still taking all the risk I had to sign a guarantor no guarantor to the to the loan if they failed I would still be responsible, and so I'm still taking the risk but I'm not getting any of the reward and I looked at it and said you know what why am I turning down, the interest that I would be earning for that reward when I'm not when I'm giving that to the bank and I decided it wasn't worth it it yeah you know it wasn't worth the the.
[14:43] The process for me to go through and really get the bank engaged or find a bank that would be engaged, and given up that risk you know it's are still keeping the risk and given up the reward so I just felt like for me it was the right decision, and Alice in a little bit different position I'm.
I'm going to say I don't need the money but it wasn't having an immediate cash outlay to me was not important to me we're very fortunate that we're, we're in a great place myself and my wife that we don't we didn't need that influx of money so we could wait over a number of years to get that bad.
[15:23] I can tell you that is a conversation I literally have with everybody in the same thing I just that's.
You know and it's just comes down to it especially now that rates are so high I mean when rates are so high it's like you're thinking well I'm giving all that interest to the bank you know and there's nothing wrong with that if that's how you structure your deal but at the same time, you know like you said it's why why do that why not just pay yourself that interest you're already taking the.
[15:46] And I can definitely see if you were if you were in a position where you were young like 60 70 she probably won't that more media than ladder so tension I think that it all plays into that you know where you're at in your life.
And what you need and what you don't need to immediately and stuff like that so yeah.
Those are all parts of the decision so in as long as we're in the cellar note topic or concept, I know that we went through the warrant conversation a lot and discussion what made you decide to do the warrants I know we did warrants on your deal right.
[16:21] You know it's just.
Keeping my finger in on the company and knowing what they're doing and getting the reports and in sort of dry helping Drive the Strategic direction of the company is chairman of the board.
I felt like I should be rewarded for that and I felt like I knew where the company.
What the potential is where we had already driven the company to but also know what still available out there to where we can go next.
And I'm a firm believer over the next five to seven years aside their company will double.
[16:56] I think we're in a great position to do that and I think that why would I not take some back and warrants to to get that reward because it it's a shocking number.
And I know it's very confusing at first but it can be a shocking number if that's Top Value goes up what those warrants can be worth yeah it's one day so it's.
Yeah it's you know in as much as people look at warrants and I know some people are brand new to this they're like what are you even talking about so let me just say real quickly a warrant is, a synthetic Equity shares that you get in combination to the interest rate on your seller note and it's what you get compensated back.
In addition to the interest rate on the seller note and so it's, it's going to be paid out in the future so it's all at the back end so in all the senior all the seller debts paid off the warrant will mature those synthetic Equity Shares are going to be worth.
The future value minus the the strike price or the day to value and in the transaction.
So that brings up a good point Phillies is funny people will say well what do you sell your company for how much you know they everybody wants to know the number right yeah and I always tell him I said well it's a little hard to say I can tell you what.
I'm guaranteed to get but my potential is you know it could it could be a lot more and.
If I throw that number a time at their eyes roll back in their head they don't understand it but it's.
[18:18] You know you only only look at what I'm guaranteed to get you know what I'm going to get but if the warrants perform and the interest you know the interest between the interest in the warps it's a substantial amount above the sell price so.
[18:34] People really have to consider that well you know and I would just say it like from, I always try to put bolt both hats on they got the company hat you got your shareholder hat on and wanting to design an ESOP that's a win-win for everybody and the company gets a lower interest rate so that's going to be helpful for them, when they have they have all this new debt now they have to pay off in cash flows everything as we all know in business so, so they win that way and they also win because you're very invested in the future like, if you as in your I think you're just a key person right you founded the company you had the vision of all the things you do strategically help the company guide itself through.
So now you're really really intended for the company to do well in the future so that helps them to and what we all care about in your company as far as your employees go, is the future share price so they win the employees will win with with a warrant as well even though the numbers might be you know hey that they have to pay you out on that one as well as all the other, portions of it at the end of the day they're going to be worth more to and it's in that's the conceptual part of like hey this they are really kind of successful if.
[19:42] Everybody's in line for them I think people that don't choose warrants or just not wanting to deal with the future.
Value of it or the future risk of that and they just want to make it super simple nothing wrong with that but I think for your situation they were perfect in terms of building a good win-win deal for everybody involved.
[20:01] Yeah and I think the opportunity to help them grow the ibadah and the stock price over the next five to seven ten years is I mean that's that's what we want to do anyway right we want to get.
Everybody rewarded that needs to have been rewarded as sometime in this cell and that's how they get rewarded by growing the company and you know this this return on their stocks and and all the other stuff that comes along with it I think, why would I not want to be involved in that now I know it's great and you're great you know it's a great way for me but it's also a great way to stay engaged and, I didn't want to walk completely away like I could have done but you know private Equity cell but I wanted to stay engaged.
At least you know helped Drive the company and I think I think I've done that so now that's great so kind of a long the warrant conversation other things that people will decide on our Tsar shares.
And the tsar's stand for stock appreciation rights they're part of building a management incentive plan that's really important for any ESOP that that has key people now you guys have.
Some a good number of key people that you guys are have as part of your team that were there before that are now they are now and then are of course going to be there in the future.
[21:13] My big question is is looking at at this our plan, what was going on in your mind when we went through that conversation or like who do you want to use SARS and you know where did you feel like there was value for the company itself because that's more of a company planning, aspect in it as your folder yeah great question I you know I talked a little bit about building the management team over the last few years but.
I started working with a management coach about five years ago and the whole reason for working with the management coach was.
What can we take off my plate to be an absentee owner it was never about selling the company it was never about ESOP in the company it was just hey if I'm going to go spend a month in Florida how do I do that how do I how do I get to the point where I can do that, so we start working on piece puppies do we need to put Blaze how do we need to get them trained what kind of person are we looking for so over those last five years we are for the put together a party.
Knowledgeable and very good management team your executive team and even down to some of the supervisors like that.
Service boarding a service supervisor and quality control manager and these other people keep people that we thought we needed.
[22:29] But having said that I wanted to make sure when we decide on Lisa how are we going to keep these people either engaged.
Part of the company because I knew long-term success of the company was going to be key to keep these people in in the company, and I think our average tenure for those back that team is.
Almost seven years is our average tenure you when we put we put our final piece together this beginning of this year, was the CFO I'd always done that function in the past we put that back key person in getting sort of getting them up to speed.
But I felt like to keep that team intact we needed to reward them and drive them and and you know I've been surprised I'm not surprised I've been.
[23:18] Pleasantly I guess pleasantly surprised over the last three or four months how how.
[23:26] How they are engaged how intently they are engaged on looking at every financial piece of the company and knowing how everything ties together and wanting to be those people that, our Executives that drives the company by financials and bar numbers and Bar, we've always been a good analytic company about looking at numbers and no one you know what drives what what makes things successful and what our rates are and all that kind of thing we've always been good at that so.
[23:55] For them to transition over into this next piece where they were taking on that financial responsibility has been an eye opener really really a great I mean I wish I almost wish I would have, Denise up a number of years ago for just because of that fact because they're driven to, make the company profitable and run the nut and get the numbers where they need to be in there they're really engaged and I think, SARS is a big piece of that right not only are we are we have we I think we have a five-year star plan in place what we pay them out over five years, but then we can reduce arms again so we can we can redo that and make that happen again for them so you know they they see the reward of what if they if they do their job and are successful, what it can look like for them individually I think this helped with the with the executive team in the key management people in the company.
Yeah and I would say that is a critical success factor when you look at some of the things that you're looking to design an ESOP plan.
[24:56] How do you get them engaged you know and these are people that are going to work like an owner would work and so you're already seeing the new behavior that they're looking at, you know the bottom line they're looking at cost.
[25:08] So you want the new Behavior you want the engagement and you want them to stick and then you know that's what a SARS for it's really to help you know get the owner type of people that are like really working 10 12 hours you know a day like you would as an owner.
[25:23] To just know they have a reward behind it you know that it's not just for ESOP shares which are still valuable but this is another piece of comp that they're going to be able to attain it, and it's a fair proposition to because it's going to be a vested program so the company has to hit this numbers in order for them to actually get the shares so.
[25:42] And personally I you know I had a little bit of fear of once all this happen there would be people some people left right there would be some uses of personality conflicts or people that just, you know didn't believe in it or didn't you know didn't believe what it was in it for them and they would leave in a halt this was a great way to smooth that over and help maintain those people so far it's worked great, you know we're new into the into the process that we'll see where it goes in five years but I don't see any, there's no - drawback of the source program I think it's a great way and a piece component of an ESOP it, I'm sure that everybody's on board and driving the train in the right direction so cool cool so so one of the next pieces of what we would do normally is we go out and look for a trustee and so, in normal part of our processes will interview some trustees you you will make the decision as the shareholder like who do you who do you think you want to use.
How did you experience the trustee process of finding the trustee because people get you know there's a lot of different questions about trustees like you know what are they going to do afterwards what's their role all of that stuff so how did you experience the process of hiring your transaction trustee which is now, ongoing trustee.
[26:59] Yeah so in and out and realize going into this that it would be it could be due to separate people you could have the the transaction trustee and then a moving forward sort of the overseer and trustee that they would manage help manage the company going forward.
You know we ended up making a decision after after interviewing a lot of several people that.
If for us it was more about the personality and fit we wanted somebody that could.
[27:27] Bring some common sense approach to.
[27:31] That role and I think the who we chose was what I mean if nothing else he's a very common sense guy I mean he's a for us it was a great choice so I had I just think.
[27:45] You know what they do we're still learning some of that about what they do I think as we get through the end of the year process we'll see a little bit more but you know just having somebody that's easy, speak to and they're not trying to act like the big expert in a room and make you act like you don't know anything is key I mean we all want to somebody that just had that.
You know that we were comfortable with yeah I think that's the key thing who are you comfortable with.
They're there to work with you not against you and once you realize that I mean.
You know a lot of people say oh you got this this trust he's coming in he's running the company no that's not what they're just there to oversee and make sure everything is complying with what should be done you know your board your executive team is still the ones.
[28:37] Bone the bone the levers and doing thing all the day today and and I don't you know it was who we were comfortable with that which is who we why we chose ours that's cool now it's, so go in and from there I know that that one of the next natural step is we have to prepare to do a presentation for the site visit and you guys did like a phenomenal job because you had your key people there at the meeting, what sort of did you have anxiety to that like when you were when we were working through that step of the process because we're going to have, in this moment we're going to the trustee that we just hired the valuation firm that we just hired come in and really like go through like who you guys are as a company and you know they got the goal of that is to really understand help them understand what you what you do who does it.
So did you have any anxiety with that or how did that go for you guys I wouldn't say anxiety I was very comfortable through the whole process and I think a.
[29:31] I'm a pretty type A personality that wants to make sure everything you know the agenda items are all complied with and we're on time and we're all but I think you know for us the process was.
We had done these type of things before because we belong to several groups where we share numbers and we're not afraid to speak about you know what we do and how we do it what our numbers are, and all these things so I think for the executive team it was a little bit of a learning process just because.
We were very quick to get our marketing we've got a mark to person marketing team we got them involved.
We shorter standardized everything we sort of you know make sure the presentations for the same and then it's just a matter of.
What content did the evaluation company the trustee yourself what what did everybody want to see what was what was important to them.
And having you know I think you got to start from the basics you got under you got to explain the industry a little bit you got to explain your business a little bit.
And then you got to dive into the numbers and you know we practiced a couple of times we ran through it a couple of times just to make sure everybody was.
Comfortable not everybody's a great presenter or speaker when they get in front of people so we walk through that a little bit.
[30:52] You know I was surprised when yourself and the trustee both said hey this is probably one of the best presentation we've ever seen I was like without getting yeah we just we just try to standardize it we try to make them very simple standardized it, and make sure everybody was engaged I thought it was more important.
The trustee the valuation company in yourself get to see our team get to see the people that are going to run the company moving forward.
And get comfortable with them and that they do know what they're doing.
And that was the key thing for us yeah and I fully and if it's possible I love that when you can get the key people in front of the trustee because.
[31:34] It gives them a sense for you know when you talk about depth of people like your management depth or you talk about these types of attributes or strengths in a company when you can see it sit there and see it I mean they're articulate they know their business they know what they're doing, it just it just strengthens the the presentation ultimately that goes into getting us all set up for finalizing due diligence, and the negotiation so it's I'd say it's a critical step in the whole process but the way you guys did it was really really well done and I think you had what like, eight people there I can't remember exactly but it's like yeah somewhere around six six days six to eight people so you know some people might be thinking how many should I have in that and so it the way the way you guys did it is you had these these.
Sections that were kind of like 5-10 minutes sections for each of these people so we didn't have to have somebody come in and talk on our, it was just enough to be like hey this is what you're going to talk about move on to the next person and then we rolled through a pretty pretty effectively so I thought that was, that always stood out to me for my own experience that that was a really good way to go and that was purely your idea and it was really I think the whole the whole, for us the hole notion was to get the trustee and the valuation company very comfortable.
[32:52] They already knew the numbers they've seen the financial-aid known the numbers by that point we've gone back and forth a few times and talking about things but to understand our business.
And who the people are they're going to help drive it to the next level.
[33:08] I think that was the more important thing I totally agree I totally gradient we didn't want to get in there and regurgitate yeah financials and hash this out we it was none of that it was just you know.
Why are we successful what makes us successful over some of the other companies out there that sell operatives yeah so, I think that was the thermal important thing you know and I know I know this is a question that I get from people all the time and as we go through these things what point did you let your key people know that they were going to that you were thinking about doing an ESOP.
[33:39] So my number two he he was very early in the process matter of fact he went to some of the conference's with me just, his familiarization with it he was a very big opponent or proponent of and he's obviously he didn't wanna see some private Equity or some some other public company come in yeah.
You know because that's a tough road you know who did they get rid of management who do they get you know what's the whole look for so he was a big proponent of going the ESOP Rail and then.
Probably.
[34:13] Let's say we start me and you start working together and basically July yep of last year we started working on a timeline of when we want to do it and I think in.
[34:23] January-february we brought the rest of the executive team in, for a closed at the end of April beginning of May so you know probably about three months before three to four months before the process we started bringing some executive team members into and let them know what was happening there were some suspicious there any suspicion there anywhere, I know they all thought we were going to sell to a.
Public company was out there by some companies up yeah so yeah that is probably a three to four month process before that.
But to keep that close-knit and a close-knit group.
And I was just our approach I've heard of other companies that told everybody when they first started doing it, but what I didn't want to do is go through the process it not work or it not succeed and then we have to go another route.
And then everybody doesn't understand all the nuances I'm a totally great yeah I agree with that because it's like I hate what I would hate to create an expectation that.
[35:21] Everybody's thinking something and then you pull and you pull in Jive over here and do something completely different so you just want to keep that data opening like kids sometimes you just not my I tell people you know you gotta prove it out like does it really going to work.
[35:34] Because there's some things you just don't know yet you know when you get into it but but your key people I think that's that was essential to get them in involved when you did.
So we finished all the due diligence then we start a negotiation when you know and this is something that I'm I'm just talking to some people about this week actually, it's so it's such an interesting way that negotiation happens because, we make an offer then they make a counter offer the trustee does so and then we make another counter offer it sir so there's this back and forth, when we started that process you know I know I know I kind of set you up to kind of like let you know what was going to happen but were you surprised by any of that or did you expect something different or.
[36:14] Now I think me and you would probably talk about it enough that I was very comfortable with it I knew that you know just like any negotiation we're going to start at a number they're going to start of number, but that's not our and I can say that's not a real number of us are, Sr with love behalf number but we you know you come to some kind of agreement somewhere there in the Middle with some terms and conditions and.
I didn't find anything surprising at all I thought it was right on target I think when me and you first started the whole process.
Over a year ago you would ask me what went well my number was and I remember my response to you is I don't have a number let's let the let's let the numbers prove out what the number is going to be yeah that's great and in this I think.
[36:59] For me that was you know.
I wasn't being realistic if the number said we were going to get a text and we're gonna try to get X but if the number said we were going to get more than x and we're going to try to get more in the next and and I didn't want to come into it with a preconceived notion that, I had to have this amount yes yeah because I can't look when you get ready to sell your business or ESOP your business or do whatever your edit your numbers are your numbers you can't you can't go in at that point and change your numbers just to make you know your retirement number look better so, I was I was very.
Okay with all that stuff I think that's a very healthy mindset and I can tell you it's not always the case in the sense and I think it's a good point to think about people thinking about this specific situation like what am I going to sell it for if it goes he's up.
[37:46] I've had a couple conversations or last two weeks with some different companies but you know if you can just like the for instance if I can justify.
[37:55] A higher Market approach value in the cash flow doesn't really support it but the multiples in the market are pushing up higher numbers I still got to go back and I have to be able to make the cash flow worksheet you know I have to make sure that the forecast cash flow doesn't put anybody in Jeopardy and I like in your deal, you know we did a lot of that in the very beginning and then we even went back at the end and said you know what will stretch out your seller nodal a bit longer just to have a little more, wiggle room for payments you can always pay that quicker, but I think there's a there's definitely a combination of two pieces fitting together in the number valuation number has to fit with, the what's cash flows available and that's why I really prefer this kind of cash flow to anything just because it's going to be more indicative of the value that connects with cash flow.
Right so in and I think Phil we.
[38:46] We went into it and sort of we're going to let the numbers tell us what the number was and then negotiate to that.
But the other part of that is to you know.
It's two hats I wear now as a seller I wear a hat and I want to you know obviously you want to try to get as much as you can yeah but then as you know the chairman of the board and driving the company, you want to be you know fiduciary responsibility of what the company does so is it sort of that trade off you know and we talked about what we got, we got this number but now we're going to get interest that we're going to get warrants, and you know do we pay off the loan earlier we're not going to get as much interest but is better for the company and any don't want to put the company in such a stress.
[39:30] It's you don't want to put it up in under any stress that it is struggling every year yeah is was this death back in a I think, you know we looked at it 10 different ways and we didn't ever see that as a problem so I think, you got to be realistic you got to be you can't say hey I'm going to I'm going to sell the company for this number and then the company the company is under a stress low for the next 10 years and can't afford to do anything yeah can't afford to grow a can't afford to just struggling to pay its bills so, yet we want to make sure that was not the case in our in our instance I just think that's good that's good planning because everybody sleeps at night and you know and it's going to work.
And one of the reasons it works so well as you guys are an S corp you stay tuned escort your tax-free been an entity now which is just, one of the things that people think about and when you actually see that come together now in 23 you guys don't pay the company doesn't pay any income tax and it can divert that money that cash flow back to paying your note note down, so I think that's one of the reasons esops are so much more successful when compared to other types of avenues so.
So we got through the negotiation you are fine and then closing was anything about the ESOP closing that you that stood out to you just as, you know put the put a bunch of documents together basically is a bunch of documents would be an understatement it was a lot of documents yeah.
[40:56] No I think we had a good plan going into it we got we got documents early we reviewed them we had some changes we have some corrections.
You know I had to other people involved my number two had by then had a portion of the company that he, he benefited from the cell from and then my wife was the other we're 50/50 holder so we all had to I think that probably.
Baby step them through that process because I wanted to make sure they understood everything.
[41:26] Every document they were getting everything they were saying and everything so we all three of us could sign the documents and it wasn't a problem.
We actually had a couple of meetings before the closing just to do that thing we would I would send them the documents.
Have them read them review them and then come with questions if we talk our way through I think there was a couple times field we brought you into the conversation and answer some questions.
[41:51] But it was important that everybody cuz look I had done.
I've been very involved in understanding what an ESOP was and all the little nuances and all the little things for closing so I want to make sure those two people had the same knowledge that I had and went just signing something that they didn't know what they were signing so yeah.
Which is really responsible honest I know that sometimes people get intimidated by documents because.
[42:16] They're written by attorneys and there's 15 million pages and all that but for you to be able to do that was really helpful and sometimes people use another advise like an attorney advisor to help them sort through all that but, um you know you just want to know where B would be take a week off take a look before video and you know that way your mind is clear and you can you can just concentrate on that stuff and work through it and, thanks for me that that helped a bunch just just getting out of the office and sitting at the house and reviewing the documents and then.
Because it is a lot of documents I think I counted I think it was on for over 400 pages of documents so it's not it's not so hard that is can't be overcome it's just one of those thank you take it one bite at a time and.
And knock it out sir yep Superhead so kind of final question I would just say you know now you know we close become boom you're an ESOP company, what you guys went through and did a normal like rollout meeting you got everybody together, what stood out to you in the rollout meeting and which is basically hey we're announcing this to my to my employees and how did the employees react when you guys did that yeah good question you know we're spread out a little bit we have six we have eight locations with two warehouses.
Um so we have people all over North Georgia so we had to bring in figure out how to bring in 90 something people into one location, in may they May 3rd I think it was May 2nd May 3rd.
[43:42] Two or three days after the closing and there was all kind of rumors flying you know what's going on we're everybody's being brought in the this never happens right we always have company day where we bring people up and do do things but we.
We disguise a little bit as a charitable event we want to do a big charity thing, luncheon little appreciation luncheon charity event so we brought everybody in and, did that and basically we had put together a board of people, including some experts from your office and other people that had come in to help us answer questions right because we knew we were going to have a town hall meeting with after after made the announcement.
We knew we're going to get a lot of questions and we were not the experts in the field to answer some of these questions and we don't want to give out bad information right we wanted to give out the correct information even though F right after the closing there's some details that are still, foggy I would say because you just got it firm up some stuff after the after the close that usually takes about 30 days 30, four to six weeks to finalize some stuff mmm that's normal yeah, you know you're not going to have some of your final stuff's not going to be right there if you got to base it on the the numbers that run through the closing so that you can't close a month and do the closing within a day so.
[45:01] So the rollout went break we had a great announcement, I think everybody thought I was going to you know bring a company up that had just bought the company and it scared everybody but the reaction was great, the thing is a judgment was great at that point and then after everything was done we had lunch and then the Big Bite bill.
Header buddy in a bike build for a big charity here in town so cool it just it was a great day I mean it was it was all tied together we had.
You know we had some experts that had done this before and relied on them and leaned on them a little bit to tell us some things that would work and not work and.
You know and we're about to do our.
[45:43] First evaluation or earnings report yep to the employee so that up that'll be a good that'll be a good exercise and we're going to see how engaged they are at that so they're actually doing that on the company outing.
They're gonna be company outing that the whole company that you gather then we're going to announce nice yeah their statements will be in their mailbox nice nice that's cool yeah no it's that's that's the stuff that people want to talk about to which is course, you know we're not have time to get into that as much but you know I think that you guys have kicked off a good communication strategy and obviously that's going to be an important part of.
Building the yeah we did a couple of things during the kickoff that I thought were pretty cool you know obviously we had shirts I'm an owner, search for everybody and then we have these big signs and set up so we did big group photos and you know it's just I think it was.
[46:37] Are buying still in shock a little bit or trying to figure out, what was in it for them sure what would there has to be something wrong because nobody is gives me part of a company now exactly nobody does there's got to be a catcher where's the catch so I think a lot of people were looking for the catch but everyone wants that you know business goes on as usual and.
It will be interesting to say after this first or the statement of what their stock is worth and see where that goes from there yeah they probably all just start Google an ESOP like what's an ESOP kind of thing right you know, that's kind of normal but I love that I mean that that is I would just say that the communication strategy so important, that you just don't have a roll out meeting their needs to be things like you're doing like that, the sharing and we say we have a small marketing department so we've gotten them involved with our monthly newsletter and all the stuff internally that we do, we've made sure he saw his now a piece of everything we do is every communication everything is, you know we talked about it we talked about ownership we talk about what ownership is and we're starting to see a little bit of.
[47:43] People understanding that what they do and how they spend money and what you know how they do things in officially affects the whole company I think we're starting to see a little bit that more and more so it's very interesting, cool my name is very interesting well thank you so much for answering all that I was really really helpful I know that, people in the country are going to listen to this and they're really like oh you know and there may be a retailer so that's one of the reasons I wanted to interview you because you have that a lot of these businesses or construction or, architectural firms you know so being a retailer isn't as common as being an employee-owned company so it's kind of cool for that so I really appreciate you being on the podcast today.
[48:23] Well Phil I appreciate you having me and you know anytime I can help you or anybody else they stop this thinking about it I'm there in available so.
So I would finally plug like Georgia spa if you're in Northern Georgia and you need a hot tub.
[48:36] You know where to get one because it's an employee-owned company so so maybe you get like a hot tub say a lot of this who knows their yeah I appreciate it cool all right well for everybody else thank you for listening today and we will see you on this next step on your journey to an ESOP.