Boating Industry

March 2016

Issue link:

Contents of this Issue


Page 24 of 43

March 2016 | Boating Industry | 25 [ Best Laid Plans ] SELLING TO A KEY EMPLOYEE Like a family succession, planning to sell the business to a key employee often requires a slow transition of leadership from the seller to the buyer. To highlight all of its intricacies, we looked at a case study of a dealership that has seen success selling to employees. Phil Miklo, former owner of Oak Hill Ma- rina, first began planning for his and his wife Teresa's exit strategy by developing an emer- gency plan roughly a decade ago in case of a tragedy involving Phil. Jake Jostand was the go-to person for Phil at the time, so he was made aware of this emergency plan, and then the Miklos put a plan in place to start putting away funds to help Jostand eventually purchase the business on a long-term plan. Tim Sather joined the Oak Hill team a few years later, making it very clear in his interview process that he wanted an opportunity to be a partner or purchase the business at some point in time, as he had previously owned a service repair center in Kentucky with a partner. Once Sather was in the business, all four parties began the conversation of how to even- tually transfer ownership to both Jostand and Sather. When things got more serious in Au- gust 2014, the conversation became determin- ing percentage of ownership. While Miklo did not intend to be out of the business until he was 60, it became apparent that it would be easier for Jostand and Sather to purchase 100 percent of the business. "Trying to have three cooks in the kitchen is a little more difficult than having one," Miklo said. Timing is incredibly important when selling to an employee. If you have an opportunity to sell to key employees who will succeed with the business, take it, even if it's not on the time- line you expected. "If I waited 10 more years, they might not want to be here at that time. It adds 10 years to their life [and] they could be in different places," said Miklo. "My kids like boating, I just don't know if it's something that they want to be in … and they're too young for me to hold that over them and hope that they're going to SELLING TO A THIRD PARTY For a dealership with no family members or key employees interested in taking over, the next choice is to sell the business to an out- side buyer. This route does not take as long to execute but still requires forethought on the current owner's part. A third-party buyer, whether or not they are already involved in the industry, will look at all of the elements that create value in the business: Financials, quality of brands carried if it's a dealership, the market area of the business and more. However, what ultimately becomes the most attractive asset are the people who come with the sale. Singleton said OneWater looks for dealer- ships that have a "right-hand man," someone who knows the role of the owner/principal and could run the business without the exist- ing owner present. This person is key to help- ing the new buyer work through the first years after the acquisition. "To us, that's the silver bullet," Singleton said. "Typically that particular person is al- ready running the business [and] the owner is micromanaging that person. It's not a bad thing; it's just that if you take the seat of the owner/principal, you're still the one that has all the risk. You're the one that's guaranteeing the floorplan, you're the one whose neck is on the line financially, and sometimes, especially over a long period of time, it's hard to let go and trust somebody to do that." The value of employees is truly immea- surable, at all levels. If you know that, down the line, you will eventually want to sell your business to a third party due to a lack of fam- ily member or key employee interest, the first thing you should do is start hiring and training the right people. "A business is not as valuable to us if we were to have to go in and bring all new em- ployees. The value in what we're doing is re- ally the people. They carry the most value," said Singleton. "For a brand new dealership today that is thinking, at some point in time, that they're going to have to sell to somebody, EMPLOYEE STOCK OWNERSHIP PLAN An employee stock ownership plan (ESOP) is an employee-owner program that provides a company's workforce with an ownership interest in the business. In an ESOP, compa- nies provide employees with stock ownership, often at no upfront cost to the employees. ESOPs are most commonly used to provide a market for the shares of departing owners of successful closely-held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pre-tax dollars. In almost every case, ESOPs are a contribution to the employee, not an employee purchase. Companies set up a trust fund for employ- ees and contribute either cash to buy company stock, contribute shares directly to the plan or have the plan borrow money to buy shares. If the ESOP borrows money, the company makes contributions to the plan to enable it to repay the loan. Contributions to the ESOP are tax-deductible and employees pay no tax on the contributions until they receive the stock when they leave or retire. (More information on ESOPs can be found at There are two types of ESOP transactions: leveraged, where the business will borrow capital to finance and fund the ESOP to keep most of the leverage inside the ESOP; and un- leveraged, where the owner uses funds inside a retirement plan but are also taking an install- ment note where the business owner is the source of capital to fund the employee stock ownership plan. "The advantages to the business owner is they typically have a tax preferential treatment in the sale, so since they're selling their stock to a retirement plan, then they can take those proceeds and invest it in what you call a quali- fied replacement securities, and defer the gain and realize the gain as they sell those securities through time," said Bielen. According to Bielen, an ESOP generally has several requirements to be successful: The business has a sizable employee base so that owners can spread the risk amongst Continued on page 26 Continued on page 26 Continued on page 27

Articles in this issue

Links on this page

Archives of this issue

view archives of Boating Industry - March 2016