Herb Golterman led Golterman and Sabo through an ESOP. The company's CEO says the moment someone becomes an owner of a business, they're beginning their liquidity event. But when deciding to sell the business, that is the moment an owner should think about their values and what is most valuable to them.
"I met with an owner a number of times who sold his business, got caught up in the dollars," Golterman said at the 2024 St. Louis Smart Business Dealmakers Conference. "He was very close to his employees, had built the business himself with his heart and soul. And after he sold the business it was gone in two years, and I think it broke his heart. So, I think it's really important to say, what is valuable to you? Is it dollars? Is it the continuation of the business? Is it the employees? What is the most valuable thing to you? I would say that that's a good place to start as you decide to sell your business."
ESOPs, he says, are expensive to put together, and require a lot of work by the owners as well as a major commitment to employees to educate them. He says his business model was that owners' and employees' interests are aligned from the time the company's doors were opened. And as the business became more substantial, those who stayed and were committed moved up. So, by the time they first started talking about an ESOP, there was a group of people who were committed and behind leadership, so an ESOP made sense for the business as it continued the theme of owner and employee interest being aligned.
"It was really successful for us in running our business, which was a custom shop that requires a lot of detail and a lot of knowledge to run," he says.
Though they spent some time searching the market for a buyer, he says they came back to the idea that the right buyer was his co-workers.
"That's how we ended up as an ESOP because it was the right buyer," he says.
He started his management team in 1997 when he hired two guys; they are now running the business. He says he started telling them around 2010 that they would be the people to take over, and began to set them up to take on the role. He says he would encourage other owners to put those management teams in place now, regardless of what their future plans are, so it doesn't have to be done hastily ahead of selling a business.
"Groom them, keep them, pay them, keep them involved, because that is the way really for the exit door to be the most valuable," Golterman says.
Looking back, he says he wouldn't have done anything differently, and life after the sale is much like they anticipated. The ESOP gives the old owners the ability to still be involved in the business — in his case, he and his brother are on the board, which gives them good control. He says he's still involved in the business but more as a consultant and not day-to-day decision making, which he calls a relief to let that go after 40 years. But it's working out exactly the way they anticipated with the people who have been there for many years continuing the business.
In thinking about a path to exit, he says the first thing an owner should do is think about their values.
"Each one of us had a little different value system," Golterman says. "And if you follow that value system, then everything will work out — that'll be what you anticipate and what you wanted out of the equity event."
