Mosaic Capital Partners Leads Conversion to Employee Ownership
by Karen Kahn
Best Friends Pet Hotel is a growing pet boarding, day care, grooming and training business, with 30 locations throughout the country. Every day, pet owners trust the devoted staff of Best Friends to care for their furry family members. It’s recent transition to employee ownership provides an interesting case study of the role of finance in these transactions.
When the owners of the business decided that they wanted to sell the Pet Hotel, they sought out an all-cash buyer. Since traditional ESOP transactions often require that sellers wait five to ten years to recoup the full cash value of the business, selling to the employees was an unlikely option.
That’s where Mosaic Capital Partners comes in. Mosaic is an employee-ownership focused private equity firm based in Charlotte, North Carolina, whose first fund manages over $164 million. Unlike traditional private equity firms, Mosaic focuses on ESOP deals, helping to fund and structure firm buyouts for the company’s employees. In the case of Best Friends, Mosaic used its ESOP expertise to help management set up an ESOP Trust and then raised the capital necessary for the ESOP to buy out the owners. Over the next five years, Mosaic will help the business to grow while the ESOP will use the company’s profits to pay off the loan. In doing so, they will benefit from one of the key advantages of an ESOP Trust owning the business: namely, that the business doesn’t pay income tax — leaving more cash to pay off the investors and reinvest in the business.
“This is the perfect example of how our kind of firm can help to grow employee ownership. Without the capital we provided, Best Friends would not have had the opportunity to become an ESOP.”
— Ian Mohler, Mosaic Capital Partners
Ian Mohler, Principal at Mosaic Capital Partners and the lead for the Pet Hotel deal, says, “This is the perfect example of how our kind of firm can help to grow employee ownership. Without the capital we provided, Best Friends would not have had the opportunity to become an ESOP. We were able to provide the current owners with the cash they needed from the sale, and we can now use our resources and expertise to help build out the business so that it provides long-term value to the employees.”
Unlike a traditional private equity firm, Mosaic does not own Best Friends. The ESOP Trust owns all the shares. But in its role as a major investor, Mosaic sits on the board and is working with management to ensure a smooth transition and accelerate growth where possible. Already, they have partnered in locating a new headquarters, hiring a finance team, and developing an app for customers — investments that will drive profitability that ultimately builds wealth for the employees. Additionally, Mosaic helped Best Friends take advantage of the Certified Employee-Owned logo to communicate its new ownership to customers.
“Partnering with Mosaic in our transaction was a tremendously positive outcome for our company and most importantly for our team,” says Jared Pinsker, CEO of Best Friends. “The ESOP structure has a natural synergy for our relationship-centric business. It not only gives our people a great wealth building opportunity but enables them to strengthen their relationships with our pet parents by communicating the value of being an employee owner. We believe this will build and enhance the relationships and bonds we seek to form with them as a team and as a brand.”
The pet services sector, says Mohler, was attractive because it is a growing business that is very much based on trust. “People increasingly see pets as extensions of their human families and spend accordingly.” He noted, “When pet parents drop their pets off for day care or boarding, it isn’t so different from leaving their child. People make choices based on their relationships, and we believe that knowing that the employees share in the business’s success will increase their level of trust.”
Pinsker says both employees and customers are excited about the ESOP. Though the transition was announced only recently, word is getting out. He recounted a story of a customer he ran into at a non-related meeting he was attending. She came up to him to tell him how pleased she was to hear from the employees at the Best Friends location she frequents that they are now employee-owners. “The employees couldn’t wait to pass on news of their new status, and she was equally thrilled,” he said.
As the new owners of Best Friends, employees will be able to grow their wealth as the company grows. “An ESOP is essentially an additional retirement benefit,” Mohler says. “All the other employee benefits, including health care, a 401K, and competitive wages will stay in place. But, in addition, an employee who stays with the company will be able to grow a substantial retirement account, something that isn’t often a possibility for workers in a retail environment.”
Karen Kahn provides communications consulting and editorial support for Fifty by Fifty.
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