This podcast episode features Nancy Pratt, CFO of Frederick Derr and Company. They are a construction company out of Sarasota, FL who closed on a 100 percent ESOP transaction at the end of 2023. The episode is our first interview from a CFO perspective. Nancy does a phenomenal job of explaining the ESOP process from the role of the CFO. This episode also compares and contrasts an ESOP transaction vs. a strategic sale.
This podcast episode features Nancy Pratt, CFO of Frederick Derr and Company. They are a construction company out of Sarasota, FL who closed on a 100 percent ESOP transaction at the end of 2023. The episode is our first interview from a CFO perspective. Nancy does a phenomenal job of explaining the ESOP process from the role of the CFO. This episode also compares and contrasts an ESOP transaction vs. a strategic sale.
[0:09]
Hey everybody this is the ESOP guy we are on a journey to an ESOP and Beyond season 5 so.
Uh welcome to the podcast today and we're so excited because this is 1 of those episodes where we get to interview,
a company that's gone through the whole ESOP process and just sharing a lots of of experience and and maybe some wisdom around the the choices that they made and how they got through the whole the whole process itself so with,
with all of that I wanted to welcome Nancy Pratt who is the CFO of Frederick Duran Construction,
um out of Sarasota Florida uh Nancy welcome to the podcast.
[0:48]
Good morning good morning so um real quick Nancy as we as we jump in um 1 of the things I'll just kind of talk a little bit about is just the the structure of your esops so people understand kind of how that is or how what it looks like so you are an S corporation.
And you guys stayed in S corporation and you're 100% ESOP yes we are.
Great great so um let's let's talk a little bit before we jump into the story of your ESOP just from your your background I know you're primarily on the financial part of the the company and you work through as a,
you know doing all the financial reports and that type of thing um how did you get to the to the company kind of tell your story real quick.
What what was your experience before that and how long have you been at the company.
[1:37]
Um well I specialize in construction accounting and I was in public accounting uh for firm in New York that was 90% construction industry,
and from there I stayed in the industry because I I really enjoyed it and I had been with um,
large homebuilders and land developers uh quite a few years and we kind of Hit the 2008,
um crash as you as they say and I got out of Home Building and still stayed in construction and then I,
I ended up um finding Frederick durren company um the person before me was retiring and it was a good fit.
Perfect yeah so as you as you got to the company um where were they in terms of like,
their plan so Fred Fred Dior obviously is the uh owner of the company the main owner of the company um at the time that you came in and,
when you came in what was the conversations around like what was happening with things like succession planning and exit planning and what were you guys as a team doing because I know you you um not just you but,
other people in the company are you know key key level people working on,
not only the day-to-day things but also kind of futuristically planning out what happens next.
[3:00]
Right um okay so Mr jur was in his late 80s he had not been involved in day-to-day management of the business.
[3:10]
Whatsoever for many many years he would he would,
come in sit on some meetings but it was pretty much turned over for the most part to our president and the company had a very um a history is very long tenure with management employees,
so I've been here 4 years,
but my co-workers most of my co-workers have been here anywhere from 20 to over 40 as far as management which is crazy right a great feeling because there's a lot of experience.
So succession planning was a very um high priority um I know from coming from a family where.
[3:54]
My dad owned his own business it's 1 of those things that it jumps on people very quickly,
and if you own your own company you love what you do um it's really it's it's so dear to Your Heart and souls your life and it's very hard to let go so that's probably why it went so.
[4:16]
So long um but it was an important thing that we had to focus on,
and we started focusing on that pretty much I was here 4 years probably into the first year,
and went through a series of steps before we got to where we are yeah so what sort of I know with you know this is something that people all all companies kind of like,
grapple with as far as like which which direction should I go what sort of options for you know for Mr Dirt did you guys kind of lay out when you looked at,
you know what what would be the best thing for him of course and for the company um you know were you looking at like an outward sale were you looking at you know obviously ESOP at that point or what were some of the options.
[5:03]
Initially.
ESOP wasn't the the first option it kind of wasn't something we really were thinking of up front um especially due to the the,
the age of our,
main shareholder um normally the esops you happen when they're much younger but we started looking at sales so we basically started um interviewing brokers,
and we worked with with 1 for a while and we put a lot of information together for that and then we switched Brokers and we found 1 we um really felt good,
about and they actually brought us a buyer a strategic buyer a very good strategic buyer wow.
Yeah so we did have a have a deal that was in due diligence.
[5:57]
Um that was a year before ESOP closed and our owner um decided that I think it's as I said it's a lot of personal,
uh passion for your company and what you've built over the years which some people don't understand that but it's not as simple as just.
Selling leaving leaving your employees people had that have been here 20 40 years most of their lives so I think it was more of.
Something that it was a legacy it was a I want to hand this to the people that built it with me which is is unusual and it's.
It's absolutely fabulous when you think about really it is yeah it really is so so basically it went from having a buy and then he decided no.
He didn't really look into ESOP much we talked about it he did talk about it as a possibility if things maybe if the the sale.
Options didn't work but he said I want to look at that we didn't look at that enough sure so then we started um.
Started working on the ESOP so that's the start of the ESOP that's our history before we got to the determination that we wanted to investigate.
Of sales toy shop.
[7:26]
Yeah so that's very I mean it's it's honestly very very normal like the p i mean everybody kind of looks at that and says all right now here here our main options and there's pros and cons and,
and I think what you hit on was really it's really important and it's really hard sometimes to,
to because we all want to kind of say like what's the what are your pros and cons what are your reasons and be very very logical about the approach but when you actually start I think the the idea is like when you start really investigating you guys got all the way.
To the level of having a buyer.
And yeah and then Mr Dior saying no I don't think I want to do that which maybe some people might look at that and say wow that's kind of maybe irrational but I think what he probably probably happened is is it now really became more real to him,
then what it was before when you're just analyzing these options and so you know that that's a big element of it and it's hard to kind of put into exact words maybe why I mean I think there's a lot of things that happen in someone's mind when they've built a company.
And even from a psychological standpoint like they kind of do care about not just the company but the people that helped helped build it.
[8:37]
Exactly and I know that's difficult for people to understand I mean when when a buyer comes in that says I want a quick close couple of months let's get this done and.
Someone would say well why would you why would you cancel that something not why did you not go through but,
you can't get to the psyche behind someone that worked very hard over the years to build something and especially the dynamic of this
company that has employees that have been here most of their lives which is,
which is beyond belief nowadays that's very unusual.
So between the the management level employees that have the experience and has have been doing these jobs and running the company for so many years um it wasn't it wasn't like.
Throwing everything into some questionable mix of well how could this end up the same people would be running the company that had been so um it was.
[9:47]
It was I'm sure a struggle of a decision for him to make.
It can't be easy and no 1 can really understand.
[9:58]
No no but you're in that situation I'm sure it's it's very difficult yeah it's it's I think that's the,
the main thing is like you really can't understand unless it's you sitting behind the table thinking about,
what your best options are and it's not like selling your car or something I mean there's a lot of there's a lot of parts and pieces so you and it's not only financial there is a lot of things on the east side Financial pluses to him,
sure yeah along the way which you can talk about um but it wasn't that it was the legacy of leaving it to a group of people that,
that would have been with you for so long and to have your name on it that was always the same way.
The logo wouldn't change the name wouldn't change um there's there's a lot more personal things behind it,
yeah and you could feel good I mean honestly you can just feel I think you can feel good about like looking back and look at your life and saying wow you know,
did I I not only helped build this company you know of course as a team that does that but I I know that the future of the company is going to be consistent and and not be disrupted by you know an outside buyer so I think that makes a lot of sense.
[11:11]
When you write I think that that was his his point and he has a lot to be proud of of where he did bring the company and and a lot of people are.
Are very um right now.
Grateful yeah and and even now but as time goes on as we'll talk a little bit about where you guys are in the um first year of your ESOP.
[11:33]
It all start to open up to everybody and like their eyes will open to like the the actual reality of it which takes a little time.
When when you go back to the story of like when you guys were with you know you went through that strategic buyer then you kind of pivoted into the ESOP um what what did you I mean you were still working with the same advisor or how how did that work.
At that point um we were and we we actually um we went to a ESOP consultant that,
that was known by our broker and we were looking at that um this all happened before the holiday in 2022 so we we left for,
Christmas and all that came in the next year thinking okay our new game plan is.
Really looking into the Esau so that's how we started the year of 2023.
And we work with 1 consultant for a while and um a couple of months.
And then our bonding company referred us to you and Watkins and we talked to you and we were very impressed with with.
[12:53]
Your knowledge and how you were advising us so we made a switch and I think that was maybe.
Last March or April maybe yep yep yeah I believe that is yeah started working with you that's correct yeah battery low please charge now we learned.
First time when we initially started looking at the ESOP before we had contracted with your firm.
[13:18]
I think we learned that.
[13:21]
1 a few big really large topics in this is you have to know your values um you have to know your company value.
You have to have a a value that's there um it can't be.
Overvalued and it can't be undervalued because if it works structurally financially it's it's going to cash flow for 1 it's going to cash flow for the other if it's not going to.
It won't if it doesn't work for the buyer ESOP it's not going to work for the seller shareholder so it's extremely important for the values to be fair.
[14:02]
And not overvalued the company to try to get more out and more upfront because if the company can't.
[14:12]
Financially um maintain those level of cash flows and and and that debt service that's detrimental to to both parties it won't work,
and and it's really detrimental you know to the selling shareholder is is because they're going to be left with this whether you do some bank finance or not you're going to be left with the seller note that,
you know and I think what what we're talking about is that,
the sustainability of the company like that that's so critical and I honestly I'm from my experience kind of doing esops throughout the country,
It's Not Unusual to have an an advisor that you start with and then the company realizes some things in the process and then they pivot that's it sounds kind of strange like you you you would think that this is pretty pretty straightforward.
But the approaches to esops honestly are a little bit all over the place which you know doesn't make a lot of sense to me anyway because it's a regulated transaction by the Department of Labor,
so it should be pretty consistent you know across the board but the reality is it's really not and and you know when you think about,
not not just the valuation like you're talking about but you have.
The advisor in my opinion has the responsibility to both the shareholder and the company to make sure that those.
That balance is there so that there is a win-win and everybody then can feel good about like hey put this deal together and close and then look back and say all right this is this is actually going to work for for the long term.
[15:41]
Absolutely and as as.
[15:45]
Financial person in the company I find that 1 of the very most important things is to have.
A clear profitability cash flow history of your company for
many years I mean I'm tracking back to 2007 and long before I got here I have I have information and and I use for projections and budgets
so when you really know.
Your numbers what you're capable of you can look at Trends um you can get a better idea of of what you can um.
Type of debt you can service yep and.
That is the the 1 of the most important things is to have a hold on your numbers and don't let anyone else come in and.
[16:38]
Put a projection out for 5 years that you can't look at and say well this is basically I worked with you on this this is my projection with you and I know that.
This is valid exactly yeah you can't let anyone else from the outside come in and do projection um because it has to be what you know your company um take can maintain exactly and that's how I felt when we.
When we interviewed you the first time.
That's 1 thing that I said she's the 1 and we had great references and and things from our bonding company I mean that right there is.
An enormous reference yeah but the points that you brought to us were things that we had already gone through for a few months.
And kind of learn the hard way saw it saw those items and and.
Already had been through that yeah and so I mean it would have been nice up front if we had if we,
met your firm upfront that's fine that would have been great yeah um you know we could pay a lot of money to to get to a point before you of of trying to.
[17:51]
Bringing another uh you know handling going with another consultant but I think it was a good learning process yeah because you know I mean that's part of,
you know education is expensive anyways alright anyways and how we look at it but you know I I've seen this happen in the industry where,
and it's not not you know I don't want to I I certainly don't want to like.
[18:12]
Give all hey I'm this great advisor but I do because there's other people that do it like I do it like they're very conscious of that so I it's just trying to find like for companies that,
are in that that place that you guys were in it's just trying to find the right advisor I have seen,
because other people like that I deal with like CPA firms across the country and there I've seen deals blow up you know after the fact because they did not do what we're talking about,
and 1 of the things you you kind of said I think it's important too because somebody's probably listening like yeah I'm the finance person and.
The worst thing I think of Finance person can be like the internal person can have to deal with in a company is not being able to pay,
what's owed you know whether that's accounts payable or the loan payment or whatever it is if there's not enough cash flow,
the finance person is the 1 that pays the price and that's a nightmare job like and I'm sure you probably have experienced that that in some point in your career.
[19:07]
Absolutely going through the um the mortgage crash yeah yeah if I do I have experience,
people are calling you hey you know when can we get paid and you're like I don't know but you know you don't want to purposely like the thing about an ESOP I mean with an economic downturn that's 1 thing but we're doing this to the company right we're we're putting on all this debt.
And if it's not done responsibly then we're the people that are going to,
be paying the price or not the advisors they're going to be the people that you that are sitting in your seats,
they're like oh man what did we do and then you have to renegotiate debt if you have to work with the trustee um you know and and some companies go out of business I mean that's that's the sheer the reality of this because cash,
cash flows everything cash is keying all the business things that we talked about and if you don't if you don't have enough cash coming in and going out or you know.
More cash is going out it's like you're not the United States government you can't just raise taxes and be like somehow.
[20:09]
Sorry I got well also when we looked at our projections we also looked at Trend history industry economic Trends we know some years are up more some are down and we had to really look at.
The history of that to determine if what we were.
[20:30]
Proposing was viable yeah exactly and I think part part of what I've seen in the industry the ESOP industry specifically is.
Is there's this and I'll talk a little bit about this just from a you know benefits to the end point but there's this oh don't worry about it because you're not the company's not going to pay taxes anyway so you guys are going to be fine and,
and you know and that might be the case but it really may not be the case and I think without looking at,
like in within the feasibility modeling which is what we're going to want to do with every client is going to be like how much exactly are you going to be paying,
for the company on the senior debt like every you know down to the the the to the penny of the amortization schedule um,
and then from there how much are you paying on the seller note and then how much cash flow do you really truly have by fiscal period each year
to make sure that we've actually done that and then how do we test that well we're going to test that based on the uh a potential for that to be downturned right so if the company's forecast comes down at what point,
will you still be fine right and those are the things that I think helped provide some um wiggle room and buffer and and help to make sure everybody feels you know like it's going to work.
[21:42]
Absolutely that we were very confident I was confident that what we came up with um was.
[21:52]
With a plan that would we could work with yeah.
You know what I liked about your I mean your situation because you guys already had 1 of the things about the esops is like where people are companies are in terms of the leadership development part like you guys already had a very solid leadership team.
And you know and I think for some companies they're still building that um.
Where the owner is still relatively involved in your situation the owner was really not involved in you know through this whole process I mean they're you know you got to you kind of went through that whole hurdle so management succession was all taken,
care of and when you got into the um the actual analysis I think that puts you into a position where um you guys were able to really.
Function well in that and there's not this like back and forth between you know what are we going to do on leadership so,
um with with leadership itself I guess what would you say about the importance of that in terms of the future,
ESOP company and how important is that for you guys in terms of managing and hitting your targets and all the other stuff.
[22:58]
Well extremely important um 1 thing that 1 Optical that was not in our way was that at the same time as.
This whole conversion to the ESOP that we would have to um change the leadership.
[23:15]
Day-to-day leadership everything in that respect was the same because our our president Keith,
have been running the company for many many years so all the other parts there there weren't any of those other moving parts,
as far as operationally right um there are a lot of financial moving parts.
Most of the pain came on the the the financial people to get.
The transaction to to try to get a a transaction um you know all these years that was going to um be beneficial to both parties but.
The operational side of it is was not,
a big problem for us um 1 Thing regarding these uh there's a lot of since it's highly regulated there's a lot of um committees that we have to form and and different.
[24:12]
Things like that internally.
So but we have helped with that we have an attorney that specializes in that um we have a trustee.
We have third-party administrator so we're not out there alone with these with these items yeah I think that's and that's a good point too because I think sometimes,
especially if people that are brand new to esops,
there you start throwing out like the roles and responsibilities for the you got your own roles and responsibilities within the company but you do have
different ESOP professionals that are participating in that so.
Why don't we walk through that just briefly just so you're like as you talk about the trustee um you know picking a trustee and how that was for you guys and then the of course their respond they're they're responsible for the transaction and eventually become the independent trustee,
and then you have your their valuation firm,
um the ESOP attorney on our side so in terms of putting together those professionals like what was what stood out to you the most in that process of of building the team of people.
[25:22]
Extremely important um especially with first of all the the ESOP attorney.
It's very important the transaction is cumbersome.
It's a a very cumbersome transaction to close mhm and having an experienced lawyer that works.
[25:45]
He's up transactions is extremely important and we maintain the same attorney that is our.
Our current um these top attorney that takes care of corporate issues and minutes and things like that.
[26:03]
So that was extremely important and then the I'm hearing an echo in the background are you okay I think we're fine yeah.
Um I think with you know and then we have the whole banking part of it in in looking at your structure specifically you guys we had a,
a bank come in and they did the senior what we call Senior debt which is the a very,
um specific part of the debt structure so when you do a leveraged buyout for an ESOP you have senior debt and then the remaining pieces get put into the seller note,
um you know from a banking standpoint you you know in your situation you guys had to move Banks you know it wasn't the same bank,
what was what was what was difficult about that for you and I know probably part of this comes down to who who we choose and,
um we made a I think we made a really good choice on the bank since we are Construction.
[27:02]
Um and provide senior financing well a line of credit revolving line of credit.
[27:11]
All at the same time now that was a challenge yeah yeah and we found through your assistance,
of working with with this particular lender we found a lender that came in and understands esops um that's the most important thing,
current banking relationship we had asked them,
if they would be willing to work with an ESOP and they said no they just don't so we did have to find another.
[27:44]
Um thank you for finance our line credit and our our senior debt and we really found a a fabulous group um,
and we're very happy with them we did have to move all the banking everything offering accounts payroll accounts everything over um but it,
1 of those things that you it's a little painful at the time but it wasn't too bad and we we find we're in a good place now with them.
[28:14]
And um.
It's it's actually pretty low fortunate that we were able to find 1 that understands the ESOP structure and is not afraid of it,
exactly yeah yeah and especially with your situation like you have the business model really requires that you have that line of credit.
And so you have when you do look for a bank it's like you have to know that there's you got to look at the transaction need.
And then you have to look at other banking credit requirements like what do we need to make sure we function and I get this question from people or sometimes it's not it's not a question it's like I didn't know we had to do that,
what I mean by that is like any bank that's going to finance the the term loan.
For the ESOP deal is going to be taking over the entire banking relationship and I think for some companies.
[29:03]
That's a big I mean especially the finance person right that's a big ordeal because it's it's going to fall back on the finance person to up you know do the new accounts and nowadays it's like.
Uh the Patriot Act is not easy like and then you have treasury services and you have you have the uh you know all the other pieces parts and pieces it's not just hey we're going to do this Term Loan everybody's happy right it's just so we were very very.
Fortunate to be honest with you that we found 1 and that was really good in your industry too with construction it's not always,
you know it's not always the the most favored industry you know just because of the C cyclicality of it so um that I think that worked really well but I think part of it when they look at it you know you are underwriting,
um there's a bank you're underwriting the team the the company's financials and as you talked about you guys had such a strong history of understanding your cash flows.
Um and I think if if I connect that back to the way the banks look at it is like they are this is a cash flow loan.
And the more you the more we can present well on that the more favorable we're going to have a situation with the bank where they can really understand what's what's coming and going,
especially when you're going through you guys have gone through different recessions and ups and downs so you if you have all that data and I think that's really critical.
[30:22]
Yes absolutely and we're in an industry that requires shy bonding also so.
Between the bonding and the line of credit um needs we.
Have always had to provide all that financial statements so the fact that we have.
History of audited financial statements um helped as well when you're when you're looking for a new bank to come in and basically take everything because.
People have to think of with an ESOP own company they're losing their personal guarantor um there is no 1 that's going to guarantee that loan but if the bank understands.
[31:07]
The the the regulation of the ESOP and how it works.
I would think they would find more comfort in that and I think the ones that are educated on that would see that,
I think it's a plus but not all banks do know not all banks do and that's and that's 1 of the things too like in my experience is you got to get that done early in the process.
Um if you wait if they wait too long at the and then they try to put it at the end it's not we're not they're not we're you're really not sure exactly what the bank is going to do but most of the time I think.
That happens because everybody's just myopically transaction focused like that's all they can think about is the transaction and you really do have to have a bigger picture on the relationships that are that you're building if you're going to move the bank it's like that's a big big deal,
um your situation with the bonding company if we come back to that is a major major issue for contractors and um well let's talk about that a little bit too because it's it's not easy sometimes for the bonding company to embrace,
the idea that we're you know when we look at some of this we're we're actually,
taking your balance sheet and and we're in a sense ruining it you know um we're we're just ruining it with with debt right and then the Contra Equity account on the inside note which basically creates just.
[32:28]
Most of the time negative Book value you know and then so now they're they're,
and you know Finance people on the bonding company right they're the underwriters they're just not used to this like they're like what has happened to your balance sheet right if they don't understand esops and so the the the 1 thing I think is important,
if you are a contractor is get that done early like don't and in our situation it was good because you know your bonding agent
actually referred me in so we were her her and I were talking the whole thing you know as we went through the whole process so but the worst thing it can be like you close your deal and the bonding company now is looking at it after the fact
and they're like what did you guys do um now we're like I don't know if we can bond that and what are they going to do they're going to be like oh no we're,
you know you could lose possible Revenue as a company post ESOP that would be.
That you thought had in your you had in your forecast so that's a huge thing I think for for any contractor.
[33:26]
Yes that that was 1 of the most important issues and.
[33:34]
It was good to know that you had closed deals,
for some of their construction clients he's up fields um so we know it's possible but if you read a lot of documentation on esops a lot of a lot of documentation articles,
they say it could be extremely challenging for construction industry that needs dirty bonding,
yep because of what the transaction does to the balance sheet and that was 1 item that we had to know up front.
[34:05]
We could make happen exactly yeah and and so we I think we did early on and I think for our story we,
kept them appraised of hey where we are and it's because things can change a little bit when you go from the beginning of the process of planning into the end just because,
you know sometimes your forecast changes or that kind of thing but we we stayed pretty consistent with it and,
I think we kept him updated and they were they were good to go to be honest there wasn't really any any major issues in fact I think we had to.
You know keep reminding them hey we're doing this and and all that so I think they just felt really comfortable with the process yes and.
[34:46]
It did go very smoothly and I think it's because it was addressed from the beginning,
what what yeah 1 of the things I was going to talk about a little bit within that is I think with contractors especially if you're going from a zero to 100% ESOP.
[35:00]
There's there's a lot of contractors that don't do that because they're it is hard to bite off that much debt,
in the bonding companies being okay with that so A lot of times you'll see a contractor go from and that really wasn't an option for us and because of because,
because of the the the Dynamics of of the shareholder group and all that but it's easier for them to bite off 30% and then we do another 30 and then you know just kind of Chunk it out in your situation like 1 of the things is is really important with,
that is is the combination between if that's not going to happen if you're not going to do a partial is going to be the how much senior debt should we get with respect to seller note and and I think the guideline here is that the the bonding companies going to be a lot more comfortable
with less senior debt.
And more seller note because and and it's kind of logical because there's a lot more control over the seller note as a subordinated note to the bonding company than there is for the bank's senior senior debt position,
um I see some times the contractor people they want to get a big liquidity event and have this huge senior dad even though the banks are not probably going to do that anyways it's really dangerous because you do jeopardize if you're trying to do a 100% you do jeopardize.
Or strain that Bonding Company relationship where like you do not want to have a problem down the road with the bonding company no no no.
[36:22]
Did it definitely in in no way that's that's not something we can risk know in this industry yeah exactly um,
so you know and the other thing about your deal is you guys had and this is just is we look at the Dynamics you had some real estate involved as well as the operating,
valuation so you have the operating company and then some real estate that just is part of it that we ended up selling all of that to the um to the ESOP.
So
Any any do you as you as you went as we went through that part of the process um I I would just say kind of in general that's a little more complicated because you have this element of real estate um from your standpoint.
You know how did you perceive that or and what challenges did you see coming that way for you.
[37:09]
Well with the real estate I I thought that was actually that was a big plus I mean we have in our area in Sarasota Florida our real estate values are are very strong,
so having having that real estate portion securing a lot of this for the lender was.
Was really positive for us gave you it gave you some real collateral as opposed to this it really did and we the real estate was.
Still we rent it from the um prior owner he owned it personally so we have a 10 year lease but having that real estate piece and where it's located the collateral with that is was.
That was actually very positive for us um and then the lender of course put between the um line of credit and the senior note it's guaranteed by um.
The uh real estate and then they have a blanket on equipment and things like that.
But they're pretty much they're all in so having the real estate was just 1 more thing that they.
They like to have they prefer to have something like that tangible.
[38:35]
Yeah I think that that was positive for us that is positive and I think that the thing I would say in closing the documentation and this is when you do have real estate you want to look at like how do you document that without having a lot of.
Extra expenses because when you're when the bank's perfecting a mortgage it's like there's a lot of other things like appraisals and environmental.
Um in in some cases in your situation we were able.
[39:02]
To work that out and what they call an abundance of caution which is basically the bank does take a mortgage on it but they did kind of,
relieve the rights of of perfecting that mortgage so they don't have to go through all of that additional expense and it can also kind of elongate a closing because there's other you know if you have to get all these other reports.
Then it becomes um a bit of a challenge for the closing date so just as a point of I mean you're absolutely right gives them a sense of collateral that they didn't have before so its.
Their their senior debt position on a non-recourse loan course we don't have a guarantee um but at the same time 1 of the things I try to identify early is what are their really what are they going to require in the closing,
um and not not only that like what attorney are they going to use too because those things can be
you know you talked a little bit about this being you know an ESOP closing is cumbersome I mean there's no doubt there's remember our call we have definitely I've had plenty.
This is definitely cumbersome with all the assignments and and it was yeah it was very unusual.
[40:11]
It it's it's and that's why you got to get like really organized up front and I think the main thing is is as much as there is to do in a closing for an ESOP.
If you have the right people in the seats you know in in the closing calls,
it's gonna it's going to come together it just it especially if you haven't been through it I know what you're you know you're kind of working through that I mean you were like you know what is going on like what's you know you have a I mean I will sell you really realistically.
In your position Nancy you're going to have you you experienced this you have a lot of of work to do you know,
you got to run down this you got to run down that make sure that all those you know the closing checklists are done correctly and and it's it does it does tax you a little bit especially if you're trying to run your business as well.
It was a lot around the clothing I mean the whole transaction is it it's a lot but around the closing it there was a lot um.
[41:07]
Of course we had a lot of moving parts and we had a majority shareholder then we had a lot of very minority shareholders so that made it more cumbersome oh yeah that's we weren't just we we had 10.
There was 1 majority shareholder and then.
Very minority once yeah and it was a lot of notes a lot of transactions a lot of documents that's right yeah but overall.
I think it went as smooth as it possibly could um post-transaction as far as accounting wise on myself and my accounting manager had a lot of post-transaction um things to.
To to do to clean up yeah yeah to document a lot I mean we notes we have there's a lot a lot of things that um have to be.
Taking care of subsequent yeah but believe it or not we're mid March.
[42:14]
My I already received my 2000 23 audit report yay yep that's great so I mean it's it.
It really didn't cause anything else to fall behind,
yeah and that's and that's because you guys are working your brains out too to be honest with you we are working a lot yeah you work you work a lot but honestly we really feel like we're very fortunate.
Very fortunate to be able to to have this opportunity good in many ways yep yep,
well now it's done you know and and you're now what's off the table is like now we don't have to worry about that anymore right so I mean think about like all the years you guys were working through the succession and exit plan and,
you know be bopping around with strategic buyers and stuff so it's just probably very nice to be kind of through that part of and now we have a new chapter which is the the the future ESOP company.
Right right and I'm actually looking forward to um the time when the first.
[43:21]
Reports come out where where the participants is actually participants get their participant values because a lot of there's a lot of people I'm sure that really don't want,
even though we had a meeting with with a 1 of your staff to explain it it's a lot so I'm sure that it will.
[43:43]
It hasn't really sunk into a lot of people that are you know working the field that.
[43:50]
See certain things every day it's true and it it does take a little time and it's it's like ESOP education is not an event it really is about,
an ongoing discussion you know and and because there's so much for them to know but it becomes real when the participant statements come out that's for sure yeah.
So as we kind of wind down I think the main thing I would say is like you do have just this fresh amount of knowledge and wisdom that you gained over the last year um,
ups and downs things like that what would you share with people like hey what is the piece of wisdom like what would you tell them you know whether they're doing your job is or whatever what should they be thinking about if they're going to be going into an ESOP transaction.
I think um the 1 of the most important things is.
[44:40]
Is working with someone that you feel you have the utmost of chopped in um because.
[44:50]
You really need to have someone that is looking out for both sides seller and buyer.
[44:57]
Um if it doesn't work for 1 it won't work for the other you know look at valuations make sure that um nothing is trying to know 1's trying to overvalue anything to get excess Cash Out up front um.
[45:12]
There's those things I think are really important they could save a lot of time and pain along the way um.
But know your cash flows know your business know your history um it really look at your financials try to try to be very conservative of your projections because you don't know,
economically what's going to happen.
Um and I I think if all those things are really coming together and you have that consultant to work with that is going to,
assist you in in leading this in the right direction you know that has the experience and and the knowledge I think um it'll be a lot of work,
but I think in the end it's very worth it yep no I think you're I appreciate your your thoughts on that and your advice because I think it is,
really a diff in your perspective honestly I think I've done a lot of these interviews
with the shareholders that sold so just having that I think this is probably 1 of the first where we've done hey this is the the finance person who's in charge of all that so it's a great perspective.
Um
[46:21]
I appreciate too I think 1 of the things that is important as you said is like take you know we we got to get the job done but at the same time what I always try to tell people is take your time.
And do the right planning upfront and then it'll go smoothly so where I see problems is people try to get into a race and they're like boom boom boom let's get this out let's get this done by whatever,
and I think that can really create some problems like you know the adage of haste makes waste.
You know I'm not ever with an as an advisor I'm never pushing people to get to the next step like like if we got to take our time let's get deeper into the forecast let's get deeper into the feasibility,
before you before you bring on all these people like and that's the trustee the valuation firm before you start spending money on all this like let's just really take our time.
I've had esops where we spent years honestly just planning and it went back and forth and we were like all right let's consider that and then finally they were ready and I'm like oh good if you're you know if you're ready then I'm ready.
But if you're not ready I'm not ready because you got you really are the ones that are going to have to walk through that so I think that's important um especially you know with some people that just.
Feel the sense of urgency and I feel like too the the other part is if your adviser is pushing you.
With this sense of urgency just understand why they're doing that I mean if there's something there that I maybe I don't know about.
[47:40]
If they're doing it for for the wrong reasons which is they want to get this thing going for themselves and it's not that's not right you know you need to you need to ask the questions about like what we're talking about right.
Well another thing with us that was that we were fortunate to have is we had a we had an offer.
[47:59]
The prior year before we close the ESOP we had an actual offer from an outside buyer we had appraisals.
Equipment appraisals real estate appraisals so we had a really good handle of values not just.
Asset value is not just Enterprise Value and.
Just to have that information I think was really important as well yeah I I totally that definitely helped you guys because you weren't starting off with just a zero evaluation having that that evaluation.
[48:33]
Um kind of that range from here to here where you know it's somewhere in this range and you're not overvaluing and you're not undervaluing because.
That is pretty much I think would be the the ultimate downfall for a transaction like this it.
If if you can't.
[48:54]
Manage your commitments over the years no 1 wins no that's right that's right no well well it was so wonderful to talk to you about it you guys did a
phenomenal job and it was honestly 1 of my 1 of my all-time favorites of doing ESOP work so oh well that means a lot,
every 1 of our Consultants that we um found along the way and all those um.
From our trustee to our lawyer to our TPA we.
We'll be working with many years to come oh and our valuation yeah yep yep so we actually have a whole new group of people that here for us we have questions.
And concerns and we feel confident and very fortunate wonderful well Nancy thank you for your time today um I really appreciate you you just taking some time for us to to go over that I was really helpful.
Well thank you for everything you've done in this whole process.
[49:56]
Well great well for everybody else thank you for listening and you know we'll see you on our next step on this journey to an ESOP.