Latest acquisition is the assets of trailer manufacturer TravAlum
by Karen Kahn
While most ESOPs are stand-alone businesses, a model that is growing in popularity is the ESOP holding company. This structure can enable firms to enjoy shared services and can make it easier for the founder to exit, at the same time that it enables employees to take their place as owners. The holding company permits firms to thrive together, and allows employees to spread the risk of ownership across multiple companies; thus the structure can increase resilience for both businesses and worker-owners over time. Here we profile Folience, an ESOP holding company in Iowa.
Daniel Goldstein, CEO of Folience, an ESOP holding company based in Cedar Rapids, IA, is helping more family-owned businesses exit to ESOPs through the platform he has created at Folience. This ESOP holding company has its roots in local media and continues to own and operate Gazette Communications, the publisher of the Cedar Rapids Gazette and several other news and information resources. Since 2016, the company has been expanding its holdings, acquiring additional local newspapers as well as two manufacturers, Life Line Emergency Vehicles and Cimarron Trailers. The 500 employees of these companies own Folience shares (as opposed to shares of only their individual employers), which are distributed through the ESOP trust. Folience is one example of how the ESOP holding company could aid the field in reaching scale.
When the company is sold to its employees through an ESOP, it creates a second legacy. The owner has now secured the future of the business for the employees and the local community.”
–Daniel Goldstein, CEO of Folience
Goldstein believes deeply in the power of the ESOP model to benefit sellers, employees, and communities. “When a business is sold to private equity or a strategic buyer,” says Goldstein, “it will be sold again in three to five years. The future is uncertain.” However, he goes on, “when the company is sold to its employees through an ESOP, it creates a second legacy. The owner has now secured the future of the business for the employees and the local community.”
Making It Easy
Probably the biggest barrier to ESOP formation is the complexity of the process. Owners of small- and medium-sized businesses sometimes shy away from selling to an ESOP because of concerns that the ESOP will be an administrative burden on company management. Folience has found an elegant solution to that problem.
In addition to its varied holdings, Folience owns and operates a Shared Services business, which supports its holdings by managing the ESOP administration and providing leadership development, strategic advice, and business services such as accounting and benefits management.
To Goldstein, the Shared Services business is what makes Folience an attractive buyer. ESOPs, he says, can be costly—and distract managers from their core responsibility of running the business. When a business sells to Folience, the transaction comes with all the benefits for employees, the business and local community, but without the hassle that comes with forming an individual company ESOP.
Latest Acquisition Saves Local Manufacturing Plant
Folience’s latest business acquisition demonstrates the mutual benefit that a sale to the holding company can provide.
On March 31, Folience announced the opening of Cimarron Kansas, a trailer manufacturer. The holding company bought the assets of TravAlum, a 30-year-old family-owned trailer manufacturer in Manhattan, KS. The small manufacturer could no longer compete in the increasingly competitive trailer market, so the family was looking for an exit. Folience, which needed more manufacturing capacity for its Oklahoma-based Cimarron Trailer business, offered the perfect exit—fair market value for the business assets and a chance to preserve and grow manufacturing jobs in the local community. The state of Kansas also saw the benefits of that outcome and provided some incentives to seal the deal.
While consolidations like this one often lead to lost jobs, in the case of the sale to Folience, all 26 employees were offered the opportunity to keep their jobs at the local factory, which is being retooled to produce Cimarron Trailers. Under the Cimarron brand, the manufacturing plant is paying higher wages and, of course, giving employees the opportunity to grow their assets as Folience shareholders. Moreover, Cimarron Kansas is immediately looking to bring on additional employees to produce orders that are already in the backlog.
TravAlum’s former COO Jeff Grieshaber, whose family owned the business, will become the new plant manager. In a press statement, he explained why the family was pleased with the outcome: “The trailer business has changed since our family started TravAlum by Liberty 31 years ago. With the changes in technology, distribution, and supply chain, we looked for a partner we knew well, who matched our values, and with whom we would be stronger together. We want to build on what we have already created, keep our employees’ jobs local, and build a financially secure future for them.”
“When a family-owned business goes up for sale, the seller wants to cement their legacy,” says Goldstein. “They want their employees, who built the business, to be taken care of. Selling the company to its employees through an Employee Stock Ownership Plan (ESOP) can be a good solution.”
Holding Company Structure Benefits Businesses and Employees
Goldstein points out that Folience’s portfolio businesses are stronger because a) its management teams can focus all their attention on building their businesses and brands, and b) they can access high-level expertise and strategic advice from the Shared Services team. Additionally, Shared Services provides the leadership development that is core to building strong ownership cultures across the portfolio.
The most successful ESOPs are those that value participation and engagement across the organization. “An ESOP’s benefits are realized most effectively within the framework of an ownership culture,” says Goldstein. At Folience that has meant increasing business literacy for all employees, inculcating an attitude of “servant leadership,” and decentralizing decision making so those with the most knowledge and experience on the ground are empowered to solve problems.
These practices are helping Folience’s portfolio businesses to grow their profits, which has a direct impact on the financial security of employees. As shareholders in the holding company, employees of each portfolio company benefit from the success of the whole—and they experience less risk in their retirement accounts. ESOPs are often criticized for putting workers retirement savings into one stock—the company—but the holding company is more like a mutual fund, in which one business might have a bad year but others will continue to grow, off-setting downturns.
Keeping Local Economies Alive
Winner of this year’s “Employee-Owned Company of the Year” award from the Iowa/Nebraska ESOP Association, Folience has a lot to be proud of. It’s transactions across the Midwest are helping family-owned businesses secure a future in their often-small town and -rural locations. A perfect example is Folience’s acquisition of Life Line Emergency Vehicles in 2017. The custom ambulance manufacturer is located in Sumner, Iowa, a town of 2,100 inhabitants. With 180 employees, the loss of the custom manufacturer would have had an outsized impact on the community. But with the sale to Folience, not one job was eliminated. As Goldstein wrote in a recent article, “This transaction illustrates how transitioning a privately held company to 100 percent employee ownership can provide sustainable economic opportunity for an entire community that would otherwise face dire risks were that company to be moved to another community or closed.”
Karen Kahn is a communications consultant and the editor of Employee Ownership News.
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