PROVIDED PHOTO / COURTESY OF ETHOS/VONT
Ted Darling, CEO of Ethos/VONT, warns companies thinking about an ESOP to be prepared for up-front fees and costs.
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Challenges turned into opportunities
By Alexis Wells
While starting an ESOP might be a trend, there are many pros and cons to making that decision. Two Maine businesses shared their thoughts on the biggest challenge of becoming an ESOP.
Founded in Brunswick in 1989, Bull Moose sells vintage vinyl records, CDs, movies and books through 11 stores in Maine and New Hampshire.
Bull Moose said in January 2022 it had been sold to its 150-plus employees. That month, Bull Moose became 100% employee-owned and created an Employee Stock Ownership Plan for eligible employees.
Shawn Nichols, president and CEO, says, “One of the biggest challenges in becoming an ESOP is how little any of us knew about the process of ESOP governance or valuation requirements … the learning curve was steep.”
“The last three years have been an amazing education for us all, finding our balance in a way that supports organizational growth and ultimately rewards our employee-owners,” says Nichols. When asked what can ease the challenges, Nichols says that spending time with other ESOP leaders and attending ESOP events can help, especially when it comes to learning new processes.
“There are plenty of resources and other leaders willing to help you understand how to turn your team of employees into a new culture of employee-owners,” he says.
Another southern Maine business cited a costly, but rewarding process of switching to the ESOP structure.
Ethos|VONT, a Westbrook-based, employee-owned branding agency, was founded as a limited liability partnership in 2000.
Glenn Rudberg, Ted Darling, Tom Gale and Judy Trepal were involved in creating the company.
Darling, who is chief financial officer, said the process of becoming an ESOP took five years.
“We began a strategic planning process in 2012. We’ve always been long-term planners [the four original partners] and were focused on what happens after we retire, how we retire, how we bring forward the next generation of leadership,” says Darling. “We explored ESOPs early on in that process and we dismissed it at the time, largely because of how we understood it.”
In 2016, the company was introduced to Bellview Associates, an Ellsworth-based firm that provides high-impact strategic and financial advisory services to ESOP-owned corporations.
“While working with Bellview, we decided that creating an ESOP would allow us to stay with the company for the next five to seven years and help build a transition in ownership from us at the time to the employees,” says Darling.
At the time, the biggest challenge was understanding the ESOP, how it would be structured, what it would mean in terms of governance and the potential cost.
“It cost us nearly a quarter of a million dollars to become an ESOP, basically to go through the process, legal fees, trusting fees, consulting fees, etc.,” says Darling. “At the time, we were doing around $10 million in revenue and maybe generating a million in profit, so a quarter of that profit was being allocated to fund the ESOP.
“That is hard for business owners to say, ‘OK, is this something that we want to do?’” he notes. “I think coming to terms with what the structure will look like as we move from a partnership to a more corporate structure and then building a board of directors and a trustee committee.”
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