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Buying into an ESOP: Purchase sheds light on buying into employee-owned firm

SBJ examines the ESOP component of Ollis/Akers/Arney’s acquisition of The Paul Long Agency

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When Richard Ollis began talks with Paul Long about buying his company nearly a year ago, one benefit the pair saw for their employees was Ollis/Akers/Arney’s employee stock ownership plan.

In fact, Long, who sold Bolivar-based The Paul Long Agency to Ollis/Akers/Arney July 1, called it the “icing on the cake.”

“The opportunities Richard presented to me for the future are things I don’t know if I could have provided to my employees,” said Long, who is now vice president at Ollis/Akers/Arney. “One of those things is the ESOP.”

According to the National Center for Employee Ownership, in 2018 about 14 million employees in 7,000 plans nationwide participate in an ESOP. These employees earn, on average, 5-12 percent more wages and almost three times the retirement assets as workers in comparable non-ESOP companies, according to the NCEO.

Ollis, president of Ollis/Akers/Arney, said acquiring a new company while operating as an ESOP adds more steps to the process.

“It’s a pretty elaborate process where you’re reviewing significant items in, frankly, both the organizations,” he said.

Ollis said following ESOP governance, the company’s board had to “vet and approve the transaction” and both companies conducted an appraisal before they could join.

New York City-based Empire Valuation Consultants conducted the appraisal and Mike Cosby and Mark Welker, partners with Husch Blackwell LLP in Springfield and Kansas City, respectively, were brought on as advisers and to develop the legal documents related to the transaction.

Ollis said the company, which handles life, commercial, auto and health insurance lines, as well as annuities, has had an ESOP since the early 1980s.

“It’s a really unique and wonderful tool that enables you to both get employees involved and give them an ownership stake in what you are doing,” he said. “It’s a great way to earn your way into ownership, and it becomes a large part of your estate and retirement.”

Companies establish a trust fund for employees and contribute either cash to buy company stock, shares directly to the plan or have the plan borrow money to buy shares, which is all tax deductible, according to the NCEO.

Ollis said the ESOP governance plan did not require a vote by the employee-owners before buying The Paul Long Agency, but an ESOP dictates more transparency and communication for major company decisions.

“They were included, and we gathered input,” he said of employees during the acquisition process. “It was typically through meetings and just through conversations.”

Part of those conversations, Ollis said, included determining if Long and his staff were a good fit with the company.

Ollis/Akers/Arney is 100 percent employee owned, he said, and the shares are distributed pretty evenly among 60 employees, including the 10 staff members gained through the acquisition.

“Paul, and his entire staff, is going to become owners just like everyone else in our company,” Ollis said.

Annually, Ollis/Akers/Arney decides what percentage of employees’ compensation the company will contribute to each workers’ stock account, Ollis said. It’s normally 6-12 percent. The percentage is determined by overall company performance as well as the individuals’ performance.

“We make a contribution each year to every employee owners’ stock, and everyone continues to build value in the company,” Ollis said.

Long said before the acquisition, he wanted to offer his employees a profit-sharing or retirement program. However, an ESOP would not have been possible.

“To put an ESOP together is a huge undertaking,” he said. “It’s a huge financial undertaking and it usually takes a company of some size to do this.”

Ollis said the ESOP is a “qualified pension plan” and with that there are “lots of legal and fiduciary requirements.”

“I don’t think there are a lot of disadvantages to an ESOP, but one of them is there is some expense involved,” he said, noting the company must conduct an annual appraisal, hire legal and accountant advisers, and help with record keeping.

The annual investment to have the program is between $20,000 and $25,000, he said, in addition to time spent managing the program within the company.

Long, who works out of the company’s Bolivar office, is quick to mention how well his employees are fitting in and adjusting: “What better culture can we have than all being employee-owners?”

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