Founded in 2005, Columbus, Ohio-based Turn-Key Tunneling, Inc. is a leading regional trenchless excavating contractor serving public and private clients and their infrastructure needs. Owners Brian and Christine Froehlich recently worked with the experts at Lazear Capital Partners (LCP) to implement an employee stock ownership plan (ESOP), a move they view as being integral to the company's success moving forward. An ESOP is an employee benefit plan that transitions ownership of the company to its employees while providing financial flexibility and maximal tax advantages for the seller
Brian and Christine worked hard to establish an employee-centric culture at Turn-Key, and were quick to point out that many of the 48 employees have contributed significantly to Turn-Key's growth and success. So it's no surprise that, in addition to the tax benefits, they also chose an ESOP for the role it plays in helping to retain employees. "We have a lot of really great people who we wanted to see profit from the business as it continues to do well," Brian Froehlich said.
Brian believes an ESOP is a good solution for companies like Turn-Key where employees can contribute directly to a team. "Everybody has some skin in the game," he said. "They can take advantage of this as an opportunity to police themselves and the others they work with. It makes everybody get better and work better."
While Turn-Key's retention rate is already one of the best in the industry, Brian believes there is still room for improvement. Employees are expected to travel to multiple states to do the work, which is a sacrifice he appreciates and does not take for granted. "Our people give up a lot and miss a lot at home. We believe in taking good care of them," he said. That means giving them what they need to build the projects – and giving them credit for the work they do.
Choosing an ESOP
With retirement less than a decade away, Brian recognizes how important it is to teach the company's younger personnel everything about the business. "A lot of subject matter experts don't understand that their greatest value is to teach others instead of just performing the work," Brian said. Training and teaching others helps to ensure they can take over when the time comes.
Brian plans to stay actively involved with the company for another five or six years before taking what could be a more laid-back role in which he can share his knowledge and experience. Until then, he will continue to focus on growing the company and developing people. "Whether our employees stay here or move on, we always want to be remembered as a key to their success into the future," he said.
In addition to putting people first, employee ownership through an ESOP:
Allows for business transition with significant tax advantages for the selling owner as well as the company
Makes it possible for owners to sell the business without relinquishing operational control
Improves employee retention and recruitment efforts
Creates a no-cost, qualified, defined contribution retirement plan for employees
Gives the employees time to prepare for their new role as shared owners
Lets companies maintain their legacy
Encourages companies to stay geographically rooted in one place
To enact the transaction, LCP partnered with KeyBank. "Lazear has proven to be a great partner to KeyBank on a number of ESOP transactions in 2020," said Douglas Dell, senior vice president and manager of Colorado Commercial Banking for KeyBank. "Our clients have relied on Lazear's expertise to provide sound advice on ESOP structuring to provide sustainability, tax efficiency and regulatory compliance. In addition, Lazear listens and provides succession and liquidity options that meet the selling shareholder's goals for a transition."
If you're considering a sale or other ownership transition, we would be happy to review your situation and share our thoughts on how to maximize value – all at no cost if you decide not to work with us.