Employee ownership within the green industry is neither new nor unusual. Green industry companies are often owner-managed and there has often been a desire to make an ownership opportunity available to key employees, either to facilitate a business transition or to retain key employees. A number of leading companies within the industry are employee-owned and, although the data is limited, employee-owned companies seem to have performed better than the industry as a whole. Several of these employee-owned companies have been aggressive acquirers of other green industry businesses over the past year.
The Davey Tree Expert Company is the largest employee-owned company in the green industry and the fifteenth largest in the United States. It is the largest employee-owned company in Ohio. It is the fourth largest company in the green industry after The TruGreen Companies, The ValleyCrest Companies and The Brickman Group. Davey has been employee owned since 1979, when control of the company was acquired from the Davey family by its employee stock ownership plan. This makes it one of the oldest employee-owned companies in the U.S. as well. The company has grown from revenues of $60 million in 1979 to approximately $600 million in 2008. Davey has had strong performance – its revenues, operating earnings, net earnings and diluted earnings per share have increased every year during the past five years. During 2008, Davey executed an aggressive acquisition strategy, completing two key acquisitions- The Care of Trees, Inc. of Wheeling, Illinois and Wolf Tree, Inc. of Knoxville, Tennessee. Davey invested more than $60 million in these acquisitions, including the issuance of approximately 930,000 shares of its common stock, valued at $9.4 million. Karl Warnke, president and CEO of Davey attributes the ability of the company to grow to the $600 million revenue level in part to the impact of employee ownership. The key to sustaining such an environment is a fundamental belief ”that people are your greatest asset,” Warnke said in an article published in the Akron Beacon Journal.
Another employee-owned business in the green industry is San Jose-based Jensen Corporation, which provides landscape construction and maintenance services throughout northern California. Jensen was ranked last year as the 22nd largest landscape company in the United States by Lawn & Landscape magazine with revenue of approximately $45.5 million. In April 2009, Jensen announced the acquisition of Huppe Landscape Company, Inc. of Roseville, California, which services the Sacramento and Santa Clara area. This acquisition adds about 100 employees to Jensen, bringing the total to approximately 450. Huppe had $3.7 million in commercial maintenance revenues and $1 million in commercial installation revenues for 2007.
Also in April 2009, Los Angeles-based Mission Landscape acquired Landarcwest, a landscape architecture and land planning firm. Mission is an ESOP-owned company which was ranked by Lawn & Landscape magazine as the 39th largest landscape firm in the U.S. in 2008. The principals and associates of Landarcwest will become owners of Mission through its ESOP.
In August 2008, Tucson-based The Groundskeeper acquired Greater Texas Landscapes of Austin through its employee stock ownership plan. The Groundskeeper was ranked by Lawn & Landscape as the 32nd largest landscape company in the U.S. with revenues of $38 million.
The ESOP as we know it was created by the Employee Retirement Income Security Act of 1974 (ERISA). ESOPs are a tax-advantaged structure for transferring ownership to employees. Essentially, an ESOP trust is created. The business makes tax-deductible contributions to the ESOP trust in the form of stock or cash, which are used to acquire stock from shareholders. The shares owned by the ESOP trust are allocated to individual employee accounts.
In a leveraged ESOP, the trust borrows the money to buy the stock from shareholders. The loan is guaranteed by the company. The company makes tax-deductible contributions to the ESOP trust to make the payments on the loan.
In certain cases, there may be even more tax advantages to an ESOP if the selling shareholders reinvest their proceeds in like-kind property.
Even in today’s difficult lending environment, employee ownership through an employee stock ownership plan can be a good option for a green industry business owner looking for an exit plan and the opportunity to include employees in the ownership of the business.