In this episode of Executive Connect, Melissa Aarskaug sits down with Matt Middendorp to talk about ESOPs, employee ownership, and why business exits should be deliberate, not accidental. Matt shares how working at an employee-owned company changed the way he thought about culture, performance, and long-term value, and how that perspective stayed with him through banking, business ownership, and advising founders through transitions. He explains what an ESOP actually is, why it often competes well against private equity, where the tax advantages really show up, and what owners should consider if they want an exit that protects control, legacy, and employee impact.

 

This episode is for founders, owners, advisors, and leaders thinking about succession, liquidity, or how to leave a company in a way that creates a win for more than just the seller. Press play before you treat your exit like a transaction instead of a decision that shapes everything after you.

Chapters:

 (0:34) Why most exits miss the bigger question

 (2:01) What working at an ESOP felt like

 (5:06) When Matt realized ESOPs really worked

 (7:54) Why employee ownership stayed with him

 (11:08) The case for a deliberate exit

 (13:05) What makes a company a strong ESOP fit

 (15:28) ESOP versus private equity or strategic sale

 (17:26) Where the tax advantages show up

 (20:09) Why ESOPs get misunderstood

 (24:26) What ESOPs really cost

 (25:39) What happens if the company underperforms

 (27:29) What separates successful ESOPs from weak ones

 (29:29) How to think about legacy the right way

 (33:28) What owners should do years before an exit

 (35:15) Matt’s final story on ownership mindset

Matt

(0:00) They killed it. (0:00) He bought it back, built it up bigger and better than ever. (0:04) And like I said, we’re actually in the process of going through a transaction right now because he recognized that it never felt right what he did.

(0:12) It never felt right. (0:13) It never felt like he was doing the right thing for all the people that helped him build this company from nothing to worth millions. (0:21) So as he went through this, he said, you know what, I’m going to do it right this time.

(0:24) I’m going to do it right this time because I didn’t like what I did last time. (0:27) I didn’t like A, what I did to my employees. (0:29) I didn’t like what they did to my company.

(0:31) And I think these people deserve better than what they got.

Melissa

(0:34) Most business owners spend years building value, but very little time thinking about how that value gets transferred. (0:43) They focus on the multiples timing and finding the right buyer. (0:47) But very rarely do they focus on the question who actually gets the once I leave.

(0:54) Today’s guests experienced employee ownership firsthand while putting himself through college at an ESOP owned company. (1:02) That perspective stayed with him through a decade in baking and another decade advising business owners. (1:09) Now Matt Middendorf helps leaders rethink exits, not just as transactions, but as strategic transitions that impact employees’ culture and long-term legacy.

(1:22) If you’re rethinking succession ownership or what happens after you step away, this conversation will challenge how you think about it. (1:31) Welcome Matt.

Matt

(1:33) Welcome. (1:34) Thank you so much, Melissa. (1:35) I appreciate you having me on.

(1:36) And I want to answer your question by the way, who should benefit? (1:39) The seller should benefit, the company should benefit and the employee should benefit. (1:43) Everybody should benefit when a company has transitioned, not just the people who are the shareholders.

Melissa

(1:48) I love that a win for everyone. (1:50) That’s the way I think myself. (1:52) Now you said working for ESOP owned companies felt different and that’s typically not something people usually talk about in their jobs.

(2:01) What was that feeling? (2:03) And maybe you could share a little bit about what an ESOP owned company is.

Matt

(2:07) Yeah. (2:07) So, so let me just talk about the feeling first and tell a very quick story from working at this publishing company. (2:12) So my background before that, I went back to school when I was 25, went to school during the day, worked at this publishing company at night running their inventory department.

(2:21) Before that I was in big box retail. (2:23) So big corporate, everybody out for themselves. (2:27) And suddenly I’m in this company where just the energy was different.

(2:31) The level of attention to the success of the company was different. (2:35) There’s a reason that ESOP owned companies grow faster than non-ESOP owned companies. (2:40) They’re more productive.

(2:42) They’re more profitable than non-ESOP owned companies, right? (2:45) Because the financial goals of the employees are lined up with the financial goals of the company for the first time, right? (2:51) Everybody’s moving in the same direction.

(2:53) So this was the publishing industry. (2:56) If you’ve ever read Curious George or where the wild things are to your kids in the early 2000s, I probably helped make it, which is kind of cool if it was published in the US. (3:05) But it was also a time where the publishing industry was undergoing a very big change.

(3:11) It just wasn’t as in demand and the company had to pivot. (3:15) The company actually had to change focus and that change of focus, that pivot didn’t come from the CEO level, right? (3:21) It didn’t come from the board.

(3:22) It didn’t come from the top. (3:23) It actually came from the people underneath. (3:26) It actually came from the people doing the work every day who understood how the company worked, how the company made money and helped it to change direction in a way that quite frankly saved it.

(3:37) I’m going to tell you this company actually was an ESOP company since the 90s. (3:40) They actually just sold last year to a non ESOP company and the employees profited greatly. (3:48) Let’s just put it that way.

(3:48) I was going to say they made bank, but I don’t know if that’s too street for this early in the podcast.

Melissa

(3:53) Ready to lead smarter and invest wiser? (3:56) On the Executive Connect podcast, we unpack executive strategies for wealth and influence. (4:03) Hit the subscribe button now.

(4:05) Don’t just watch, act. (4:08) No, making bank is I think what everybody wants these days to make bank, but I think it really changes the way people show up to work. (4:19) It does.

(4:20) It changes their day-to-day, their attitude. (4:24) It’s not just kind of watch the clock and when it gets close to five, you’re preparing to leave and then when five hits, you’re out the door and forget about it till the next day. (4:35) I think it affects culture too.

(4:37) I think when you have people that are coming to work on purpose to make the workplace a better place to do good work, it changes the revenue I would imagine as well. (4:53) When did you realize it wasn’t just a nice idea to have and work for an ESOP company, but something that was actually structured differently and really changes the way people think about leadership today?

Matt

(5:06) Ironically, it wasn’t when I worked for one. (5:08) I was just a punk kid. (5:09) Went back to school just trying to figure it all out.

(5:14) That actually happened later after I got done with college when I was in banking, commercial lending, then eventually a bank executive. (5:22) I had clients that were ESOP companies. (5:24) I had clients that became ESOP companies while I was working with them.

(5:30) I have to admit it wasn’t because of my recommendation. (5:32) I’m embarrassed to say. (5:33) Looking back, I wish I had been more involved in that decision.

(5:37) The truth of it is I was there every step of the process watching them transform their company from, in the case of one specifically, I’m thinking three shareholders, into the employees were shareholders. (5:49) I got to see as a banker that the reality meets the promise of ESOP. (5:56) Like you just said, 2.3% to 2.5% faster growth as an ESOP company versus a non-ESOP company. (6:03) In the first year after a company becomes employee-owned, they typically grow 4% to 6% faster. (6:08) I’m sorry, the productivity grows 4% to 6% in the first year after they become an ESOP, which of course comes right back down to the bottom line. (6:16) You’re hiring and retaining better talent, and the company is more successful as a result.

(6:24) Now, I didn’t appreciate that until I was in banking and I got to see it for real. (6:29) But the other part of that that was really very powerful was the owners of the company, the shareholders, didn’t have to sacrifice their return to sell to an ESOP. (6:40) When I talked in the very beginning, the first thing I said was the seller should win, the company should win, and the employees should win.

(6:47) That’s exactly what I’m talking about. (6:49) The employees lined up, they’re more likely to stay, they’re going to make money for retirement as an ESOP. (6:54) The company has some very distinct benefits besides growth to being an ESOP, some tax benefits, I’m sure we’ll talk about it.

(7:00) But as a seller, you took the risk, you built the company, you should absolutely get paid what the company is worth in the open market. (7:09) And you should see that return, and that’s one of the things that ESOP also does very, very well, is we go head to head with private equity and third-party sales every day and win.

Melissa

(7:19) Yeah, I love it. (7:21) I love that you’ve had a very successful banking career. (7:25) My first real big girl job was in banking and I love kind of how that sets the trajectory and how it has set the trajectory for me.

(7:35) But you sell deals, valuations, transactions at a large scale, and most people tend to stay along that same path, except for you and me. (7:47) We pivoted a bit, but why did ESOP stay with you?

Matt

(7:54) So there’s a couple of different things. (7:56) Number one, so after I left banking, June 28, 2013, 4, 15 p.m. or so was when I left banking, I started my own business. (8:08) Now my business, like you, in my case, it was consulting in the financial services space.

(8:13) And one thing that a lot of people don’t know is a lot of banks are partially ESOP owned. (8:18) So it was still a theme in the process of my consulting that I was doing in the banking. (8:23) But the truth of it is, is it stuck with me because after I sold my company in the spring of 2023, I didn’t know what I was going to do next.

(8:34) And when I got a call from a banker friend of mine saying, hey, Matt, how do you feel about ESOPs and how do you feel about helping to create them? (8:42) No hesitation, no hesitation. (8:45) I worked for one.

(8:46) I saw the promise of one. (8:48) I saw the promise of several of them when I was in banking. (8:51) I understood how banks used them to retain and attract employees.

(8:55) And then all of a sudden, I’m being brought in and I’m helping business owners make these decisions as somebody who I believe at least is uniquely qualified to do so because I’ve been a business owner, I’ve sold a business. (9:06) I understand how hard that is. (9:08) I understand that I lost more sleep trying to decide what I was going to do with my business when I got that offer than I did whether or not I was going to have kids, get married, all those other things.

(9:16) The biggest life decision I feel like I ever made was selling my business. (9:20) But I’ve also been a banker and I’ve seen the financial side. (9:23) I’ve seen the promise of it.

(9:24) I understand how all that comes together. (9:26) So now that I’m creating them for a living, it just feels like the next step in a fantastic life, honestly and truly.

Melissa

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(10:12) And it’s funny because I think exits are, I don’t know, to me, they seem kind of back to the beginning one sided a lot of times, right? (10:25) And I love this model where everybody wins. (10:29) And I think as businesses scale and companies grow, I think a lot of times owners unknowingly give up their control or they give up their value.

(10:43) But you made a decision that was really interesting because, and you’ve built your entire career around it. (10:51) And so was there a moment that you saw the traditional sale versus the ESOP sale? (11:00) Or was it just kind of what you were saying previously?

(11:02) Because I think coding your life around it is really a unique lens.

Matt

(11:08) So here’s what I saw. (11:09) And it wasn’t even on purpose. (11:10) That’s the best part.

(11:10) It just ended up that way. (11:12) So here’s what I’ve really seen. (11:14) And I have stories of M&A gone wrong.

(11:17) I’ve had stories of traditional M&A going right. (11:20) I’ve seen it all. (11:21) So the point I want to make is, is ESOP isn’t for everybody, but here’s what I really want people to take away from this part of our conversation.

(11:27) It’s not even about ESOP. (11:29) It’s about when it comes time to transition your company, be deliberate about it. (11:37) Most sellers, it just happens to them.

(11:41) And they aren’t making a deliberate choice about how they exit or how they give up control or any of those things. (11:49) They get a letter in the mail or they get a phone call and they make a decision to sell without really understanding what their goals and what they’re trying to accomplish actually is, are. (12:01) They don’t work through a process.

(12:03) They don’t have anything deliberate that happens. (12:05) They just sell their company. (12:06) And that’s when people make a mistake.

(12:09) That’s when people wake up the next morning and go, what did I just do? (12:14) When you walk out on your last day, not looking your employees in the eye, because you know you just sold them out. (12:21) You know that they’re going to cut jobs in three to five years that might not even be there.

(12:25) That’s when you can’t go to the local cafe anymore without looking people in the eye, because you know that all the sponsorships and all the money that stayed in the community is now gone. (12:34) By the way, you didn’t make any more money than if you had looked at other options. (12:39) You just took the one that was in front of you at a moment where you felt like taking advantage of.

(12:45) So for the most part, selling is something that happens to businesses and it’s not on purpose. (12:51) And part of what I try to do is help them make it on purpose.

Melissa

(12:55) Yeah. (12:56) So is there a typical size of business that is a strong ESOP candidate?

Matt

(13:05) So if you’re looking at this, here’s what I’ll say, right? (13:08) Is 15 to 20 employees. (13:12) I’m not going to give a revenue number.

(13:14) I’m not going to give a profitability number. (13:16) You know, some companies only want to work with companies that are so big. (13:19) We help small businesses do this all the time.

(13:21) So if you have 15 to 20 employees, if you’re profitable, because ESOP companies, like any transaction, it has to be a sellable company. (13:28) Somebody has to want to buy it. (13:30) In this case, it’s somebody that you hire to sell it to, a trustee, because here’s what happens in an ESOP transaction.

(13:37) A trust is created and the company is bought by the trust. (13:44) So the seller sells the company to this ESOP trust that’s overseen by a trustee. (13:48) What’s really cool about that is two things.

(13:51) Number one, the trustee does not want to get involved in the day-to-day of your company, right? (13:55) They’ll interact with the board on a governance level, but they’re not there to set strategy and run your company day-to-day. (14:01) So if we’re talking about being deliberate in your transaction and we’re looking at price, we’re looking at control, we’re looking at your legacy as a business owner, and we’re looking at your identity as a business owner, from a control standpoint, the people that run the company the day before an ESOP transaction run the company the day after.

(14:21) So that doesn’t change. (14:23) That doesn’t change. (14:26) So in that transaction, the trustee, the trust is buying the company.

(14:31) The employees are beneficiary owners. (14:34) They’re not actual owners of the company. (14:37) So that’s a very important thing to know too, is you’re not suddenly handing the reins of the company again to the employees.

(14:43) They don’t get to hire and fire people. (14:44) They don’t get to change the name. (14:45) They don’t get to change the color in the breaker malls, right?

(14:50) So one of the things that I would want people to understand is if you have 15 to 20 employees and you’re profitable and your management aligns with the principles and ideas behind how this is going to work with ESOP, they want to stay in control, then ESOP is a great place to start if you have those pieces in place.

Melissa

(15:14) So when you talk about value, you know, evaluations and valuation working with like private equity, for example, or a strategic buyer, how does it work different from those kind of transactions?

Matt

(15:28) So let me contrast the two, if you don’t mind. (15:32) And I want to be really, really clear. (15:34) Private equity works for people and third-party sales, strategic sales work for people if your goals align with it.

(15:41) And for the most part, the people that sell the private equity just want to wash their hands of it and be done, right? (15:48) Unfortunately, that doesn’t work that way anymore. (15:51) So I actually had a conversation with a construction company yesterday out of Clearwater, Florida, got a private equity offer, okay?

(15:59) The number, the top line number was great, but they hadn’t even gone through the process yet of due diligence, which was going to be basically sitting in a room going over their financials while the private equity people held a baseball bat wrapped in barbed wire saying, hey, we’re going to drive this price down, right? (16:16) But they were only going to get 40% of that up front at close. (16:21) There were earnouts involved.

(16:24) And oh yeah, by the way, they’re no longer in control of the company. (16:26) So they’re no longer in control of whether or not they get those earnouts. (16:31) And the company is requiring them to put equity back in.

(16:36) So they were paying them this really cool top line number that was actually only going to be this by the time they were done with earnouts. (16:42) And oh yeah, by the way, you’re going to pay more taxes on a PE transaction than an ESOP transaction. (16:47) So you’re actually really here and you’re not even in charge of the company anymore.

(16:52) So you’re going to work for somebody else in a company with your name on the door. (16:56) Not very much fun, right? (16:58) When you compare that to an ESOP transaction where fair market value, earnouts can happen, but they’re not normally part of the game.

(17:07) So the number you get is the number you get. (17:09) There are ways as a seller in an ESOP transaction to not have to pay capital gains or to defer capital gains until you start spending the money. (17:19) So that’s why when we look at top line price versus total return, ESOP wins a lot of the time.

Melissa

(17:26) Let’s talk the tax advantage. (17:28) So that’s a real win that you just mentioned. (17:31) If you’re selling a business, I think all of our biggest expense these days are taxes.

(17:37) And so any ability to save money and have some tax advantages is key. (17:42) So where does the tax advantages actually show up? (17:46) Is it kind of what you were just mentioning or is there some additional?

Matt

(17:49) Well, for the sellers, that’s where it is for the sellers, right? (17:53) It’s something called the 1042 exchange. (17:54) That’s a whole nother podcast episode getting into how that works.

(17:58) But the short, short, short version is you can defer taxes as a seller. (18:03) It’s really that simple. (18:04) If you don’t want to pay your capital gains, you can defer taxes.

(18:07) I know, by the way, if you want to pay your capital gains and take the installments, it’s long-term capital gains versus ordinary income in a regular sale, right? (18:15) So you’re saving money in your tax rate if you do decide to pay the taxes. (18:19) But let’s talk about the company impact, right?

(18:23) Because there are some special tax treatments for the company as well, because in ESOP, employee stock ownership plans are a qualified retirement plan, actually established under the same law that established 401ks called ERISA. (18:37) And actually, we should probably warn people if you’re driving, pull over. (18:43) If you’re running, you might want to stop for a second so you don’t run into traffic, because this is a huge thing.

(18:48) This is one of the things that really attracts people to ESOP. (18:50) If you’re a seller, you can defer taxes. (18:52) But if you’re a company, an S-corp that’s 100% employee-owned, you no longer pay state or federal taxes.

(19:04) Those K-1s that would normally go to the shareholders now go to the ESOP, and the ESOP does not have to pay.

Melissa

(19:16) Wow.

Matt

(19:17) Right?

Melissa

(19:19) That’s a showstopper, right? (19:20) I think it’s a big showstopper. (19:22) There’s a lot of money that you can do, a lot of things that you can do with all that extra cash.

Matt

(19:28) Well, and just to be clear, that is proportional, right? (19:30) So if you’re 30% employee-owned, you get 30% of the benefit. (19:33) If you’re 40% employee-owned, you get 40% of the benefit.

(19:36) But you’re right. (19:37) You can do a lot of good with that. (19:38) It might be paying the sellers in the beginning, but ESOP companies buy other companies all the time.

Melissa

(19:45) And I think even from my perspective, I think I had the perception that ESOPs were complicated, expensive, hard to manage. (19:56) But from this very short conversation, it seems like a really smart way to go in the world that we’re living in right now. (20:06) So what’s kind of real and what’s the noise?

(20:09) Why does it get such a bad rap or why has more people not heard about them?

Matt

(20:14) Okay. (20:14) So let’s talk about, you mentioned a couple of things. (20:18) It’s expensive.

(20:19) It’s complicated. (20:21) It’s not just selling your company and doing this, right? (20:25) Just walking away from it.

(20:26) There is an ongoing legacy that you’re leaving in an ESOP, and that legacy does need to be managed. (20:31) So you are going to have ongoing costs if you’re an ESOP. (20:33) You’re going to have a third-party administrator, just like you do with your 401k.

(20:37) As a matter of fact, most of the time, it’s the same administrator as your 401k. (20:42) You’re going to have a trustee that’s going to set a share price every year. (20:46) You have a valuation firm that does evaluation every year.

(20:49) So for a lot of ESOP companies, yeah, there’s an ongoing cost to being an ESOP. (20:55) But if you’re saving millions in taxes, you’re okay paying a few thousand dollars to not have that, right? (21:04) The cost of creating an ESOP is real.

(21:06) There is a cost to create an ESOP, but here’s the thing I’m going to say. (21:10) Well, I’m going to say one thing, and then I’m going to climb on a soapbox for another. (21:13) Number one, if you’ve ever sold through an M&A broker, you’re paying, what, 5%, 6%, 7% of the transaction.

(21:24) Don’t tell me there’s not a cost to M&A, right? (21:28) That is way more expensive than selling to an ESOP. (21:32) And by the way, that’s just the cost of the M&A broker.

(21:34) That’s not even the attorneys or what you’re paying your accountant or any of that stuff, right? (21:39) So M&A transactions cost more than ESOP transactions, but the M&A people don’t make money on ESOP transactions. (21:47) So therefore it’s expensive, right?

(21:50) The other side of that is, is there are M&A firms that do ESOP transactions and they are also charging a success fee. (21:55) And I want to tell your audience right now, if you talk to somebody that wants to charge you a percentage of the transaction for an ESOP, turn around, walk away, hang up the phone, wave in the rear view mirror. (22:06) You should never have to pay a percentage of the transaction in the ESOP world.

(22:10) There are a lot of companies that do it, but if you’re paying 3%, don’t do it, right? (22:16) It should be a flat fee because what’s a success fee for? (22:19) It means that we, me, would be going out and finding a buyer for you, and you’re paying me for successfully doing that.

(22:26) In an ESOP transaction, we’re going to sit down and interview trustees together that I think are a good fit, and you’re going to pick the person who’s going to buy your company. (22:34) I don’t deserve a success fee for that. (22:36) Sorry.

(22:37) Sorry, industry. (22:38) Don’t hate me. (22:40) So why don’t people know about this?

(22:42) Why don’t more people do this? (22:43) Because some people, let’s just be honest, in every ESOP transaction, there is a component of seller financing. (22:52) So you don’t just get paid right away.

(22:54) You’re going to get paid out over 5, 7, 10 years. (22:58) You can get money up front from the bank. (23:00) Absolutely, we do that in most of our transactions.

(23:03) You get somewhere between 20% and 40% of the sales price up front, but you’re still going to carry a note. (23:10) You’re still going to get paid interest for that. (23:12) But for some people, they don’t want it.

(23:15) So it’s not perfect that way. (23:18) Why don’t you hear about it? (23:19) Because the M&A industry doesn’t make money from it.

(23:22) What do most people do? (23:24) They call their accountant. (23:26) They call their attorney who don’t really know much about ESOP, and they say, but I know this person who sells businesses.

Melissa

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Matt

(24:26) And that’s where they go.

Melissa

(24:26) So what is the range or general cost of setting one of these up? (24:32) Sure.

Matt

(24:35) I mean, here’s what I’m gonna say is it varies by company. (24:39) But I will tell you that normally to do an ESOP company, but I want to say this. (24:48) Let me put it to you this way.

(24:50) Let me put you this way. (24:52) I have a client right now that’s going through a transaction. (24:54) I talked to their bank and their bank said, well, what do you want to do about the fees?

(24:58) I’m like, well, what do you mean? (25:00) And he’s like, well, the last client I did paid 1.5 million to get this ESOP done. (25:05) And I said, my client’s paying 275,000 total with the attorneys, with everything.

(25:13) Now I say that because it does vary. (25:16) If the client had a more complex situation, it might be a little bit more expensive, but the truth of it is, is again, compared to a PE transaction, if you’re paying a million and a half dollars to do any sub transaction, you’re getting taken for a ride.

Melissa

(25:32) Now, what about like, what happens if the company underperforms?

Matt

(25:39) So let me tell you a story. (25:41) Let me give you an example because right there’s a business cycle and it’s not always a straight line like we do in the projections, right? (25:47) So COVID hit.

(25:50) One of my clients is a restaurant over in Minneapolis, St. Paul, over in Minnesota, and COVID hit, their industry got turned upside down overnight. (26:01) So how did they stay open, right? (26:03) How did they do it?

(26:04) They were doing their carryout orders, they were doing delivery, they were doing all the things that restaurant is at the time just to stay alive. (26:10) But that meant that the seller was at risk of not getting paid. (26:17) So in this case, what the seller actually did is they said, you know what, I’m the bank, you’re going to pay me interest only for six months, and we’re going to see what happens, right?

(26:28) So the seller continued to collect his interest. (26:30) And then in six months, things had kind of straightened out a little bit and he was able to go right back to his principal and interest payments. (26:37) So you have flexibility with ESOP that you don’t normally get from a bank, right?

(26:43) But I guess I just want to acknowledge, yeah, there is the risk to the seller of taking those payments over time, especially if you’re not involved, which is, I mean, most sellers stay involved, at least on the board, if they choose to transition out over three to five years. (26:57) I have another client, four sellers, they’re actually in their early 40s. (27:04) They’re not going anywhere, they’re going to stay with that company for 10 to 15 more years.

(27:08) They still are in the same jobs that they were before the transactions. (27:12) But they wanted to pull money out of the company and diversify and invest in other places. (27:17) And that’s what they’re doing.

(27:19) They wanted some liquidity, they wanted to diversify their wealth, and that’s what they were doing. (27:24) And one of the reasons they were doing that is because they didn’t want to have all their eggs in one basket.

Melissa

(27:29) Yeah, it makes sense. (27:32) So now that we’ve kind of talked a little bit about setting the ESOP up and thinking about it kind of from a long-term perspective, like you said, it’s a five to seven year kind of payout range. (27:46) So the ones that are successful from the ones that are not successful, what makes one ESOP successful and another not?

(27:56) What is one thing maybe that causes them to have a struggle or a challenge being successful?

Matt

(28:02) So I love this question. (28:05) Thank you so much, I love that question, Alyssa. (28:07) Just, you know, nobody has ever asked me that question before, so I love it.

Melissa

(28:11) I love it.

Matt

(28:11) Okay, good. (28:12) And here’s what I’m going to say, is part of the process to become an ESOP is something called a feasibility study, right? (28:17) So my job is primarily education.

(28:20) You don’t have to call me and say, hey Matt, I want to make an ESOP. (28:22) You have to call me and say, hey Matt, I want to learn about it and then decide if I want to formally study it to make sure it works. (28:28) So where do ESOPs go wrong?

(28:33) And I’m going to say that really the biggest place where an ESOP could go wrong is overvaluing the company. (28:41) Meaning you are a, the projections that we create to show future company growth are overly optimistic, right? (28:54) It’s one of the reasons that we’re so successful here at VisionPoint Capitals, because we’re a valuation firm, right?

(29:00) That is our heart. (29:01) That’s our soul. (29:03) And we don’t overvalue companies because of it.

(29:07) I always tell people 75% of my job is education, but guess what? (29:10) The other 25% is managing expectations. (29:14) And if you want a price that I can’t get you without damaging your company, I’ll tell you that, right?

(29:21) That, hey, this just isn’t the, this isn’t the path you should go because what you want isn’t going to leave everybody in a better place.

Melissa

(29:29) And I want to talk a little bit about legacy. (29:31) This has been something that has been on my mind for the last several years. (29:37) And when I think about legacy, personally, I think about, you know, the impact I want to make on the world, the impact I want to make, you know, for my family, what I want to leave behind.

(29:49) And then I also think about it from a wealth standpoint. (29:53) And, but you actually ask people to think about legacy in a different capacity, something that’s more broader. (30:02) How should they be framing that?

Matt

(30:05) How do you frame legacy? (30:07) This is fantastic. (30:08) I love these.

(30:09) So here’s what I would say. (30:10) If you want to frame legacy, my favorite clients are the ones that have their name on the local high school football scoreboard, right? (30:19) Or in the gym or every philanthropic event in town they’re associated with somehow, right?

(30:28) Those are the people that really care about their communities. (30:31) Those are the people that really care about the people that work for them. (30:34) They recognize that the business they built is bigger than they are.

(30:39) And they want to make sure that the people who helped them build it get rewarded, but they also want to make sure that the community stays intact. (30:48) I do a lot of speaking in smaller communities all over the country, because there’s usually one, two or three major employers that anchor the community. (30:55) And if they’re gone, the community never recovers.

(30:58) So ESOP is a way to keep jobs in those communities. (31:02) But if you don’t mind, I actually want to tell a story because I think this is a better way to explain legacy. (31:07) So I have a client right now that’s going through the process of becoming an ESOP.

(31:12) They actually closed at the end of this month at the end of May in 2026, but they actually sold their company before to private equity in 2017. (31:22) Okay, so they sold the company to PE in 2017. (31:26) They stepped back and the company died.

(31:32) They had never lost a foreman. (31:34) It’s in construction. (31:35) They had never lost a foreman.

(31:37) They lost almost all of their foremen. (31:40) Almost all of their major customers left because the PE company came in and raised prices. (31:45) And they called my client back and said, hey, we need you to come in.

(31:49) We need you to sit in the board. (31:50) We need you to help us rebuild this and fix it. (31:53) And he was like, I can’t.

(31:55) He has already killed it. (31:57) So they called him back the next day and said, well, how would you feel about buying it back? (32:02) So he brought in a couple of partners, bought the company back for pennies on the dollar for pennies.

(32:10) Basically AR is what he paid for it. (32:13) So he sold it. (32:14) They killed it.

(32:15) He bought it back, built it up bigger and better than ever. (32:19) And like I said, we’re actually in the process of going through a transaction right now because he recognized that it never felt right what he did. (32:28) It never felt right.

(32:30) It never felt like he was doing the right thing for all the people that helped him build this company from nothing to worth millions. (32:40) So as he went through this, he said, you know what? (32:42) I’m going to do it right this time.

(32:45) I’m going to do it right this time because I didn’t like what I did last time. (32:48) I didn’t like A, what I did to my employees. (32:50) I didn’t like what they did to my company.

(32:52) And I think these people deserve better than what they got. (32:56) And by the way, he’s making twice as much as he made when he sold his first time.

Melissa

(33:01) And that’s great. (33:02) And look, I think, you know, we’re all humans. (33:05) We make mistakes.

(33:06) We’re learning, growing, experiencing people and good on him for realizing, you know, he made a mistake and he wants to kind of have a redo or a replay. (33:16) Um, and so I love that as such a great, um, the stories are great. (33:20) I think we learn so much from stories.

(33:22) And so if someone is five to 10 years away from an exit, what should they start doing right now?

Matt

(33:28) Think about what their goals are. (33:30) And this case, the gentleman I just mentioned through the company that he sold, bought and sold again, um, is selling again. (33:37) He got a letter in the mail one day and made a call.

(33:39) He was having a bad day. (33:40) So he made the call and then got too far down the road to feel like he could back out. (33:46) Right.

(33:47) So be deliberate about what you want your company to be. (33:51) Be deliberate about what you want to get out of it. (33:53) And I want to stress one more time.

(33:54) When I talk to people, it’s about control. (33:58) It’s about legacy. (34:00) It’s about your identity as a business owner.

(34:02) And it’s about price because again, you deserve the price. (34:07) You built it. (34:08) You should get paid.

(34:10) But if those other three things matter to you at all, we need to figure out what matters. (34:14) And we need to figure out then which exit option is the best one for you. (34:18) And I talk to people all the time where I’m like, yep, you should, you should sell the private equity.

(34:22) You absolutely should because what you’re trying to accomplish doesn’t line up with what ESOP does.

Melissa

(34:29) Yep. (34:29) I love it. (34:30) This is, has been a great conversation.

(34:33) It’s not really just about the exit of the company as a transaction. (34:38) It’s not just transactional. (34:40) It’s one of, it’s one of the most important decisions I feel that a business owner will make.

(34:46) It’s not just about the money, but it’s also about cultural, the cultural pieces of it, the structural piece of it. (34:53) And so what I really appreciated about our, our chat today is really reframing the exit from what do I get to what happens next and really building a strategy that it’s a win-win for everyone. (35:05) So thank you so much for being here, Matt, and sharing your knowledge and time with our listeners.

(35:11) I want to get any final thoughts that you want to leave before we close up.

Matt

(35:15) So I want to leave with a story if that’s okay.

Melissa

(35:19) Yeah.

Matt

(35:20) Another, another client sold their company. (35:22) I talked to them about a year later. (35:24) I talked to them a few times in between, but a year later, I rounded back and I said, okay, so what changed?

(35:29) What changed in your business? (35:32) And they said nothing except one thing. (35:37) Now, when the vendors call trying to sell us stuff, which they do all the time, every business owner on here right now is going, oh, I hate that.

(35:46) I hate getting calls from people trying to sell me stuff. (35:49) Well, now when their employees answer the phone and they say, I’d like to talk to the owner, the employee goes, you got them. (35:57) So that level of ownership and the success of the company isn’t something most people have now.

(36:05) And if you love the idea of everybody being invested in how it goes forward, if you love the idea of making just as much, if not more, as if you sold a PE, if you like the idea of your company being better off because of the tax benefits of ESOP, then let me know. (36:24) And I’d be glad to explore and just educate on what it is, how it works and see if it’s a fit for you.

Melissa

(36:31) That’s great. (36:33) Thank you so much for being here today. (36:36) That is the executive connect podcast.

(36:39) For more information, we will leave all of Matt’s details in the show notes and for more podcasts on wealth, leadership, and alternative investments, visit us on YouTube or wherever you podcast. (36:52) This is the executive connect podcast.