Dive Brief:
- Phoenix-based Willmeng Construction, one of the largest privately held commercial general contractors in Arizona, has become a 100% employee-owned firm, the builder announced last month.
- With the launch of its employee stock ownership plan, Willmeng, with more than 350 employees, became the second-largest employee-owned general contractor based in Arizona, according to the release.
- The decision to convert to an ESOP was made even though multiple construction companies have indicated interest in a potential merger or acquisition, CEO James Murphy said in the release. “We have every interest in continuing to partner with these outstanding firms, but it was important to us to maintain our culture and preserve our offering to our clients by continuing to invest in our people,” Murphy said.
Dive Insight:
ESOPs can be attractive to medium- or large-sized businesses with stable operating cash flows and low debt looking to move forward with an ownership transition, said Brad Werner, the leader of Milwaukee-based accounting firm Wipfli’s construction and real estate practice.
ESOPs often involve a company taking on debt to buy out a departing owner in retirement. Employees then assume collective ownership via shares in the company, but also inherit the debt used to finance the transaction.
The ESOP structure is popular among construction companies as a way to have a smooth succession plan while allowing owners to exit with an end-of-career windfall. Eight of the top 20 spots on the National Center for Employee Ownership’s list are AEC firms, including:
- Omaha, Nebraska-based HDR.
- Overland Park, Kansas-based Black & Veatch.
- Kansas City, Missouri-based Burns & McDonnell Engineering.
- San Jose, California-based Rosendin Electric.
Werner said ESOPs give long-time owners partial or full liquidity via a relatively simple structure.
“I think there’s a legacy preservation element of it,” Werner told Construction Dive.
However, Werner also said that the creation of an ESOP can add a significant liability on a company’s books, alongside the high administrative costs of running it in perpetuity.
“All of a sudden, you’re adding debt to a balance sheet,” Werner said.
Willmeng declined to share details regarding debt and its own ESOP transition other than emphasizing the importance of retaining talent and taking care of succession planning in the release.
“Our culture and foundation are built upon great outcomes for our clients. To consistently do that, you have to recruit and retain the best in the industry,” said Murphy. “Transitioning to an ESOP is a way to double down on expanding upon that formula of success — retaining the most talented, caring builders in the industry.”
He added, “In the end, the decision was very clear. We’re a young team, solving long-term succession through decisions from within into perpetuity was the clear, right answer. Our employees earned it, there is no question about it.”
The largest employee-owned general contractor headquartered in the state is Tempe, Arizona-based Sundt Construction, which has 3,900 employees and is tied for 30th in size nationally among all ESOP firms, according to the NCEO.