Ep. 326 — Jim Steiker & Ken Baker: How ESOPs Buy, Get Bought, and Make 55 Millionaires

6 min read

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Episode Summary

You’ve heard ESOPs are great and you’ve already decided you don’t qualify. Too small. No successor. You need your money in a lump, not stretched over ten years of seller paper. So you write the whole concept off and go back to fielding calls from strategics and private equity firms who want to fold you into something else. This is the closer of the four-part ESOP miniseries, and Steve Storkan and I brought on two guests to blow up that false binary. Jim Steiker has been doing ESOP work for 35 years (chairman of SES ESOP Strategies, board of EOX) and walks through how mature ESOP companies acquire other businesses, including a 1042-then-merge structure that solves the size, succession, and cash-up-front objections all at once. Then Ken Baker, CEO of New Age Industries, tells the owner side. He started his ESOP at 55, sold in four tranches over 13 years, kept running the business, and now has 54 millionaires on his payroll (some of them on the factory floor making $17 an hour). The repurchase obligation crisis you keep hearing about as the reason ESOPs get sold? Jim calls it a red herring. Real reason is usually management greed or a godfather offer.

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## Top 10 Takeaways
  1. Your ESOP company hits a sweet spot 8 to 20 years in: cash flow strong, no taxes, ready to acquire.
  2. Selling to an ESOP solves three founder objections at once: size, succession, and the cash-up-front problem.
  3. The 1042-then-merge structure lets a target form its own ESOP and roll into a larger S corp ESOP buyer.
  4. Repurchase obligations rarely force ESOP sales. The real reason is usually management greed or a godfather offer.
  5. Your board determines whether your ESOP gets sold. Stack it with private equity types and you know the answer.
  6. Ownership is not management by consensus. One hand on the tiller, 300 owners on the upside.
  7. Owners are not born; they are trained. Four to five hours of financial literacy beats a memo announcing the deal.
  8. Tranching your ESOP exit lets you ride the share price up instead of taking one strategic check.
  9. You can stay running the business after the ESOP and still get shares allocated back to your account every year.
  10. Rented cars don’t get washed. Owned forklifts don’t get beat up. That is the cultural shift.

Sound Bites

“We often hit a tax nirvana of sorts, where a company is 100% owned by an ESOP and is an S corporation. And therefore, we have, at the corporate level, an entity that doesn’t pay taxes because it is a pass-through S corporation, and then a shareholder that doesn’t pay any taxes because it’s a tax-exempt venture trust.” (@TBD) — Jim Steiker

“Frankly, I think sometimes the cause is management greed. Management has synthetic equity that will invest. They will get the change. Rather than having to settle for the ESOP valuation, they will get the strategic valuation on the change of control.” (@TBD) — Jim Steiker

“Some of those 54 millionaires and a fair amount of them are working on the factory floor. They’re making 17, 18, 19 dollars an hour. And they have a retirement over a million dollars.” (@TBD) — Ken Baker

“You don’t come out of the womb being an owner, you’ve got to be trained.” (@TBD) — Ken Baker

“Why are you beating up Joe’s fork truck? Cause he owns that fork truck too. And his head goes down. It’s a different conversation. They own the fork truck. They own the scrap. They own everything in the building.” (@TBD) — Ken Baker

About This Episode

Jim Steiker is chairman of SES ESOP Strategies and a partner at the law firm Stevens and Lee, with 35+ years of ESOP transaction work. He serves on the board of EOX (Employee Ownership Expansion Network). Ken Baker is CEO of New Age Industries, a 65-year-old plastic tubing, single-use systems, and RFID solutions manufacturer based in Southampton, PA. He started selling to his ESOP in 2006 at age 55, sold in four tranches, completed the 100% ESOP transition in 2019, and has built 54 millionaires inside the company. Both Jim and Ken serve on the EOX board. This is the final episode in the four-part ESOP miniseries Ryan ran with Steve Storkan during Employee Ownership Month.

Resources Mentioned

  • SES ESOP Strategies — Jim’s firm inside Stevens and Lee.
  • Stevens and Lee — Jim’s law firm.
  • New Age Industries — Ken’s company. — newageindustries.com
  • EOX (Employee Ownership Expansion Network) — State centers promoting employee ownership.
  • National Center for Employee Ownership (NCEO) — Where the state center task force originated.
  • Arkona Intentional Growth Training — Online training to view and run your company like a financial asset. — Arkona.io
  • Daniel Goldstein (Folience) — Referenced as an example of an acquisitive ESOP holding company.
  • Jack Stack (SRC Holdings) — Referenced for diversifying through ESOP-owned acquisitions.

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