Fund completes its first two deals, impacting 150-plus workers
by Karen Kahn
Apis & Heritage Capital Partners (A&H), an investment fund incubated by the Democracy at Work Institute (DAWI), has converted two businesses, with a combined workforce of more than 150 workers, to 100 percent employee ownership. The two businesses, Apex Plumbing of Denver, CO, and Accent Landscape Contractors of El Paso, TX, both have majority Latinx workforces, making them a perfect match for A&H, which is using its investment capital to expand ownership and wealth-building opportunities among BIPOC workers.
The Employee-Led Buyout
Using a model they call the “employee-led buyout,” or ELBO, A&H provided debt financing and technical assistance to convert the businesses to employee stock ownership plans (ESOPs). In partnership with DAWI, the team will also support building strong ownership cultures designed to improve performance.
The two businesses fit the type of company we were looking for to a T.— Todd Leverette, A&H founding partner
Said Todd Leverette, A&H founding partner, “The two businesses fit the type of company we were looking for to a T. We hope that these transitions signal to the market that we are here, and we’re excited to invest in these types of companies: lower middle market, essential services where at least 30 percent of the workers are people of color.” These types of businesses, said Leverette, are relatively recession proof and continued to be profitable during the COVID pandemic.
In the case of both businesses, A&H found itself competing with other buyers. Leverette says, A&H’s bids won the day, because “we offered a fair price to the sellers and also the peace of mind that goes with knowing their businesses would be in good hands.”
One of the sellers, Cameron Stevens, who founded Accent Landscape Contractors over 40 years ago, had considered an ESOP earlier but had thought the transaction was too complex. But A&H made it easy. Said Stevens, “A&H offered me a fair market price, did not require me to carry a large seller’s note, cut through all of the red tape, and showed me throughout the process that my workers were going to be able to carry Accent forward.”
A&H offered me a fair market price, did not require me to carry a large seller’s note, cut through all of the red tape.”— Cameron Stevens, founder of Accent Landscape Contractors
Stevens had struggled to find the right buyer. “I could have sold my business to a competitor or private equity, but I know what can happen next—the culture changes and people get laid off,” he said. I didn’t want that for my employees. They are like family to me, and they helped build the company.”
100 Percent Employee Owned
When A&H makes a deal, it doesn’t acquire the business, but rather provides the debt financing to immediately transition the business to ownership by the ESOP trust. Over time, the business pays off the debt; the workers become the owners of the business without having to invest personal resources. “We announced to the workers that they now own the business,” said Leverette. “It was exciting, but we also were aware that workers would have questions and concerns—what would this mean for them?”
“We spent a lot of time letting the teams know that we were not coming in and laying folks off,” said Leverette, because that’s the expectation when an outsider buys the company. We told them, “Everybody’s job is secure, and ownership is an additional benefit on top of the benefits workers are already receiving.”
We understood, says Melissa Hoover, executive director of DAWI, that workers would a) not necessarily understand what this means, b) be skeptical and c) take awhile to process what it would mean for them. To build trust and mitigate the feeling that outsiders had just “bought” the company, the announcements were made using simultaneous translation with headsets. That ensured a deeper understanding and made it easier for everyone to feel comfortable asking questions in their native language, explained Hoover.
Ensuring Long-Term Success
As an investment partner over the next five years, A&H will sit on the board of directors of each company and continue to be involved in ensuring that “these great companies become even better,” says Leverette. “We don’t come in, do the transition, and say ‘have a good day.’ We will be there working with the CEOs, management teams, and the workforces.”
What’s truly exciting about the A&H Legacy Fund is that it is centering questions of racial and financial equity in the ESOP world.”— Melissa Hoover, executive director of the Democracy at Work Institute
One of the biggest challenges the businesses face, says Leverette, is attracting workers in today’s tight labor market. To grow the businesses, the workforces have to grow. Recruitment is the number one priority, and Leverette believes the new ownership structure will be an advantage: “We are going to show that not only do these businesses provide good benefits, but they are great places to work, where you can grow and be empowered.” Our model, says Leverette, “will make these good companies even more competitive.”
To create that empowering ownership culture, A&H has brought in its partners at DAWI who have developed a three-part approach:
- Introducing open-book management and information sharing, with two-way engagement about financials.
- Implementing a coaching approach to supervision, drawing on a model developed by Cooperative Home Care Associates.
- Providing training and support for worker participation in governance.
“We are endeavoring to make this as ‘out-of-the-box’ as possible,” says Hoover, “but it will need to be customized to each workplace.”
Open-book management, a practice that develops an ownership mindset by educating employees regarding how a business achieves its financial and performance goals, will start immediately. Following an implementation strategy widely used in ESOPs, the two companies will choose a critical number to target, and DAWI will hold problem-solving sessions with teams to orient them to tracking and improving that number. “Everyone will know what we’re tracking, and that we welcome ideas for improving performance around that number,” says Hoover. “That’s how we create an ‘ideas factory.’”
In the first year, DAWI will also roll out supervisory training for managers. The core of this training is effective communication and conflict resolution. These practices have been shown to greatly improve retention through building respectful relationships in which frontline workers feel valued rather than expendable.
Finally, DAWI plans to lay the groundwork for governance training by socializing the idea and identifying a pool of workers who will make good leaders and representatives. “We expect to start governance training in year two, with the goal of having one worker on the five-person board in about 18 months,” says Hoover. “But that worker won’t be alone in serving, because we’ll have a backup person and a trained peer group to support them.”
Hoover notes that there are multiple challenges in rolling out and developing ownership cultures, particularly with predominantly Latinx workforces and dispersed work sites. “These are workers who rarely—if ever—come to a central headquarters,” says Hoover. “They work in the field.” For that reason, DAWI is looking at online learning platforms, particularly cell-phone based options.
Hoover says the ESOP field has developed great training tools, but most of it has not been used with limited English-speaking workforces. “We may be the first translating these tools for a Spanish-speaking, limited-literacy audience,” says Hoover.
A Justice Strategy
A&H’s strategy for transitioning business ownership to BIPOC workers to close the wealth gap recently caught the attention of the Truist Foundation. DAWI as the sponsor of A&H Capital Partners was named a semi-finalist in the Inspire Awards Challenge, a workshop-style competition that supports innovative nonprofit organizations helping to grow, develop, and sustain racially diverse or women-led small businesses. The Truist Foundation is partnering with MIT Solve to host the 2022 competition.
Hoover notes that there was some skepticism in the field when DAWI, which has a history of advancing worker cooperatives, announced A&H Capital Partners would raise investment capital to transition businesses to ESOPs. Now that work is coming to fruition—and it is spurring conversations in the ESOP world about the role employee ownership can play in furthering equity.
“What’s truly exciting about the A&H Legacy Fund,” says Hoover, “is that it is centering questions of racial and financial equity in the ESOP world.” She explains, “We have a justice strategy here, a viewpoint on how to use this tool to address inequities in society. In the ESOP world, there is a spectrum of opinion on whether and how to do this. That conversation is rich, because of the potential to impact the lives of BIPOC workers at scale.”
Karen Kahn is a communications consultant and the editor of Employee Ownership News.
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