ESOP ACQUIRERS: COMPETITIVE ADVANTAGES AND CHALLENGES

Transcription

1 ESOP ACQUIRERS: COMPETITIVE ADVANTAGES AND CHALLENGES THE ESOP ASSOCIATION ANNUAL MIDWEST CONFERENCE SEPTEMBER 10, 2015 Wil Becker Managing Director Clyde Rhodes CEO Jude Anne Carluccio Partner

2 INTRODUCTION Clyde Rhodes CEO Clyde Rhodes joined Mac Arthur Co. as a Director of Finance in 1981, was promoted to Vice President of Finance in 1983 and to Chief Financial Officer in He served as the head of finance for Mac Arthur Co. until Clyde lead the company s ESOP purchase committee in After completion of the ESOP purchase he assumed the position of Chief Executive Officer until present. Mac Arthur has made five company acquisitions in the last eleven years. The most recent acquisition is Weekes Forest Products, which is now a wholly-owned subsidiary of Mac Arthur Co. Jude Anne Carluccio Partner [email protected] Jude Anne Carluccio, partner with Krieg DeVault LLP in the firm's Minneapolis office, regularly represents clients involved in buying or selling ESOP businesses. Her clients include ESOP companies, institutional and individual fiduciaries, shareholders and management. She is experienced in virtually all facets of the legal issues arising from the ESOP's unique shareholder status. She also assists clients with the design, implementation, qualification, administration, funding, communication, plan termination and IRS/DOL controversies of ESOPs, as well as all other types of employee benefit plans. Wil Becker, ASA Managing Director [email protected] Wil leads Chartwell s Valuation Services practice. He specializes in valuations of privately held companies for equity compensation plans, financial reporting, and general corporate planning purposes. Wil conducts valuations of corporate securities issued as equity compensation to comply with IRS (IRC 409A) and financial reporting (ASC 718) requirements. He also supports Chartwell s Corporate Finance group with M&A and corporate consulting. He is a frequent presenter on M&A and valuation issues to professional groups. 2

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4 MAC ARTHUR CO. OVERVIEW Founded in 1913, Mac Arthur Co. has grown to be a leading one-step distributor of building products and materials Operates more than 35 distribution facilities in 16 states Headquartered in Saint Paul, Minnesota A culture of employee ownership stems from Mac Arthur being 100% employee owned since 2004 Approximately 300 employees in distribution and 360 employees in manufacturing Strong long-term financial performance Increased sales at a compound annual rate of 13.1% since 2004 despite economic recession Sales in excess of $440 million in 2014 and projected to be $480 million in 2015 Other 6.1% EPS 24.5% Residential Roofing 20.4% Net Sales by Product Line HVAC Products 9.2% Commercial Roofing 26.5% Commercial Insulation 13.3% 4

5 Energy Panel Structures (EPS) EPS is a wholly-owned subsidiary of Mac Arthur Headquartered in Graettinger, Iowa Additional plants in Missouri and New York Manufactures cost-effective pre-engineered buildings for the agricultural, cold storage, and commercial and residential housing markets Independent dealer networking of over 350 professional builders 5

6 MARKETS AND GEOGRAPHY PRE TRANSACTION Market leader in the Midwestern United States Strong, long-term supplier and customer relationships provide a competitive advantage Mac Arthur primarily serves commercial roofing, HVAC, and insulation markets As a one-step distributor, the Company s primary customers are roofing and mechanical contractors MacArthur also serves the residential roofing market Market leader in the Midwestern United States Mac Arthur Locations Mac Arthur EPS 6

7 MAC ARTHUR ACQUISITIONS SINCE 100% ESOP Diamond Insulation Supply, Inc Commercial and Industrial insulation distributor in the San Diego, CA market 15-year-old single location family-owned business $2.0 million in sales at time of acquisition Systems Roofers Supply 2007 Wholesale supplier of roofing materials in the Pacific Northwest Majority-owned ESOP company $30 million in sales at time of acquisition BBL Buildings & Components, Ltd Builder of commercial and agricultural buildings and trusses Located in Perryville, MO 100% ESOP owned $7 million in sales at time of acquisition Fingerlakes 2013 Builder of commercial and agricultural buildings and trusses Four locations in Up-state New York $20 million in sales at time of acquisition 7

8 MAC ARTHUR ACQUISITIONS SINCE 100% ESOP Weekes Forest Products 2014 Leading lumber and building materials distributor Headquartered in St. Paul, MN $246 million in sales at time of acquisition 8

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10 OVERVIEW Leading lumber and building materials distributor and wholesaler Founded in 1978 by Steve Weekes 6 distribution centers in the Upper Midwest Logan Lumber distribution center in Florida North Star wholesale division in St. Paul A culture of employee and customer focus Approximately 170 employees Core management with over 130 years of combined industry experience Strong long-term financial performance Sales growth at a compound annual rate of 11.3% from 2010 to 2014 Sales of $263 million in 2014 and projected to be $280 million in

11 WEEKES SELLING RATIONALE AND PROCESS Steve Weekes retirement Estate planning and management succession planning Objectives included: Competitive value Secure future for management Preserve employee/supplier/customer centric culture Find a buyer with integrity Engaged investment banker to market company Full shop to strategic and financial buyers Solicit multiple offers Create competitive bidding process Very structured process 11

12 ADVANTAGES OF SELLING TO MAC ARTHUR 12

13 SELLER ADVANTAGES Selling to Mac Arthur ensured integrity throughout the transaction process Mac Arthur would not re-trade the terms once under exclusivity Weekes management had the opportunity to become employee owners and participate in equity growth of the Company Ability to ensure a culture of ownership, growth and opportunity for workforce Sale to Mac Arthur ensured continuation of Weekes brand Competitive financial terms Stock transaction and no requirement to elect 338(h)(10) No Mac Arthur financing contingency Favorable tax status (100% S-Corp ESOP) allows for quicker deleveraging 13

14 MAC ARTHUR ADVANTAGES Partner with a strong company with a broad geographic scope and diversified product line Improve competitive position within current markets Expand product offerings and realize product synergies through distribution channels Substantially increase relevance to suppliers Increase purchasing power and enhance margins Tax advantages of employee-owned S-Corporation improve cash flow and growth opportunities Customer service and relationship focus Strong brand reputation made Mac Arthur an ideal partner 14

15 WEEKES EMPLOYEE ADVANTAGES Mac Arthur committed to retaining Weekes management and Weekes workforce Mac Arthur offered a robust retirement benefit package through its KSOP Employees became owners in Mac Arthur through the KSOP Expansion of career growth opportunities within the Mac Arthur group of companies 15

16 CHALLENGES 16

17 CHALLENGES Legal/Governance Mac Arthur KSOP Trustee approval of acquisition Trustee Acquisition Agreement Fairness opinion Board composition of Mac Arthur and Weekes Integration of long-term Weekes employees into Mac Arthur KSOP Termination of Weekes 401(k) Plan Financial Value Accretive Limitations 17

18 KEYS TO SUCCESSFUL ACQUISITIONS 18

19 Keys to Successful Acquisitions Engaged and focused company management Identify acquisition team Include multiple disciplines Dedication to maintain momentum Assemble seasoned deal advisors Accountants Corporate financial advisor Legal Open and continual communications between company management and the ESOP Trustee regarding acquisition strategy Includes trustee, valuation firm and trustee s legal counsel 19

20 QUESTIONS? 20