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Profiles of Employee-Ownership Transactions:

 

Aegis Associates Atlantic Fasteners Marland Mold

 


Aegis Associates, Inc.
Location: Waltham Industry: Business Services
Employees: 60
Structure: Employee Owned


Background

Aegis Associates, Inc. provides information technology services and business solutions to clients throughout New England. Aegis services include: technical consulting, network infrastructure design, implementation management, security and software solutions, and customized maintenance services. Founded in 1989, this $14 million company currently employs close to 60 people and serves a wide range of customers from small businesses to banks and hospitals.

Jim Gildea, who founded Aegis 17 years ago, was attracted to an ESOP as a succession strategy that could provide an organized process for a gradual ownership transition and keep Aegis locally owned. After exploring his options further, Gildea concluded that by structuring the sale in stages, an ESOP would allow him to realize both these objectives and preserve some flexibility. Gildea decided to initially sell a 40% minority stake in Aegis to the ESOP.

The initial sale of stock to the ESOP in 2005 already has workers thinking more like owners as they begin to take literal and figurative ownership of the business's operations. As the majority shareholder, Gildea will benefit financially from any increased performance the ESOP produces. In addition, the ESOP structure creates an established buyer for additional shares of Gildea's stock in the future. At the same time, Gildea has preserved his flexibility and could, if he so chose, sell his remaining shares to an outside buyer. However, it is Gildea's goal that over time the employees will own the majority of the company. In his own words: "I've watched too many businesses sell out to large, out of town companies. I vowed I would do everything in my power to avoid that at Aegis."

Transaction Structure

In 2005, Gildea commissioned a formal valuation of the business. The MASSEIO helped fund the cost of this initial ESOP valuation. Satisfied with the findings of the valuation Gildea decided to proceed and in December 2005, sold 40% of the company to the ESOP for $1,000,000. The transaction was financed with $750,000 of senior debt from Citizens Bank as well as cash contributed to prefund the ESOP by the company. Gildea currently retains a majority ownership stake in the company. Ultimately, he expects to sell the rest of his stake to the ESOP.

As part of the transaction, Gildea's partner, Jack Baxter, moved up from Executive Vice President to President, and Jim assumed the title of Founder. This more accurately reflects Gildea's role, since the bulk of his time is spent with customer relationships and mentoring newer staff.

Two other partners, Brian Mullaney, VP of Sales, and Matt Sheehan, Senior Account Executive, continue in their roles. For them, the benefit of the ESOP is that it continues an ownership transition that was put in place several years ago and provides a tool to reward and motivate existing staff. In addition, the ESOP has proved a valuable hook in the recruiting and retention process as newer staff members are attracted the promise of share ownership over time.

The ESOP Trust was officially formed on February 10th, 2005, and announced to the staff at an all-hands meeting. As one employee put it - "When I heard we were having an all-hands meeting, I figured it was one of three possibilities. This is the one I was hoping for!"

Sources of Capital
Senior Debt
$ 750,000
Name of Bank
Citizens Bank
-
Company Contribution
$ 250,000
-
Total ESOP Funding
$ 1,000,000

Employee Stock Ownership

Aegis Associates is currently 40% owned by the employees. Employees become fully vested in the ESOP after 6 years of service. The Aegis Associates' ESOP is administered by an outside firm. Ultimately, Gildea expects to sell a majority of the company to the ESOP. In the meantime, management has pledged to contribute 40 percent of pre-tax profit to the ESOP giving everyone at Aegis an incentive to shoot for the highest profit possible. Because Aegis is an S corporation, no federal taxes are incurred for the ESOP's share of profits.

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Aegis Associates Atlantic Fasteners Marland Mold


Atlantic Fasteners
Location: West Springfield
Industry: Commercial and Military Specification Fastener Supplier
Employees: 49
Structure: 100% Employee Owned


Background

Atlantic Fasteners is a leading distributor of commercial and aerospace fasteners, ranging from hex nuts to Hi-Lok collars. Atlantic's customers include nuclear power plants, medical equipment manufacturers, machine shops and other buyers of MRO (maintenance, repair, and operating supplies) or OEM (original equipment manufacturer) fasteners. When CEO Patrick O'Toole acquired the company in 1981, it was a small, struggling company with five employees and annual sales of $250,000. The introduction of modern management practices and the deployment of appropriate technology has transformed the company into a solidly profitable, $13 million business.

As principal owner, O'Toole became interested in employee ownership after considering selling the firm to a strategic or financial buyer. Concerned that an outside buyer might destroy the systems and customer focus he had carefully nurtured for more than twenty years and uproot the company from its home in Massachusetts he began giving serious consideration to a sale to the employees

Ultimately, he concluded that a sale to the employees was the best way to ensure Atlantic Fasteners' continued existence and provide a gradual transition for the company's owners and senior management. Following its conversion to 100% employee ownership in 2005, Atlantic Fasteners is now structured to remain a long-term employer in the Greater Springfield community benefiting both its employees and the community at large.

Transaction Structure

After consulting with other established ESOP companies, including Marland Mold of Pittsfield, Massachusetts, Atlantic retained the services of a valuation firm to conduct a preliminary appraisal of the company. The MASSEIO helped fund the cost of this initial valuation for the ESOP. Satisfied with the results of the valuation, Atlantic decided to proceed with formal ESOP planning and retained legal expertise to help structure the ESOP.

In October 2005, the ESOP purchased 100% of the company for an undisclosed sum of money between $5 and $10 million. To purchase the company, the ESOP borrowed money from Westfield Bank and the sellers agreed to finance the balance of the transaction with a seller's note. The seller's note is structured as a 12 year term loan with interest only for the first seven years. President Tony Peterson and CEO Patrick O'Toole will remain with the firm and retain their titles.

Sources of Capital
Senior Debt
 
Westfield Bank
50%
Subordinated Debt
 
Seller Note
50%
Subtotal
$   --- 
Equity
 
Employees
Union Pension Funds
Subtotal
$  ---
Total Financing
$  ---

 

Employee Stock Ownership

Atlantic Fasteners is 100% owned by the employees. To be eligible for participation in the ESOP, employees must be 21 years old and have completed 1,000 hours of work after his/her first full 12 months of employment or subsequent plan year. Employees become fully vested after four years. The ESOP is administered by three trustees including the company's CEO and President. As a 100% employee-owned S corporation, Atlantic Fasteners is not subject to federal income tax on its profits.

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Aegis Associates Atlantic Fasteners Marland Mold


Marland Mold
Location: Pittsfield
Industry: Mold Manufacturer
Employees: 60
Structure: 100% Employee Owned


Background

Marland Mold, a manufacturer of injection molds, was on the brink of closure in 1992 when its employees decided to explore the feasibility of using an ESOP to purchase the company from its corporate parent Tredegar Industries. A feasibility study conducted by The ICA Group and funded by the Mass Office for Employee Ownership and Involvement found that a buyout was feasible and the decision was made to prepare a business plan and attempt to raise the necessary financing to purchase the firm. In September 1992 the employees bought the company and saved their jobs.

Today, this 100% employee-owned company is a prime example of the difference employee ownership can make. The company went from a loss of (14.3%) on sales under the last year of corporate ownership to a profit of 15% on sales at the end of the first employee-owned year. The company now employs 60 people and is well positioned for future growth. The company has been frequently cited as an outstanding example of employee ownership and is a past recipient of the "New England ESOP Company of the Year" award by the New England ESOP Association and was named the "Entrepreneurial Company of the Year" by The Northeastern Industrial Developers Association.

Transaction Structure

Marland Mold was purchased from Tredegear Industries for $2.45 million. An additional $1,065,950 of financing was required for working capital. This brought the total financing package to $3,515,950.

Sources of Capital
Senior Debt
 
Pittsfield First Agricultural Bank
2,035,950
Subordinated Debt
 
Seller Note
100,000
National Cooperative Bank Dev. Corp.
250,000
LEAF
80,000
Economic Stabilization Trust
100,000
City of Pittsfield
50,000
Subtotal
$    580,000
Equity
 
Employees
100,000
Union Pension Funds
900,000
Subtotal
$ 1,000,000
Total Financing
$ 3,615,950

Employee Stock Ownership
Initially, employees owned 12% of the stock through direct purchases and an additional 18% was owned by employees through the ESOP, which had borrowed funds from the National Cooperative Bank to acquire the stock. Once the initial ESOP loan was paid off, the ESOP borrowed additional funds to repurchase the Union Pension Fund holdings and make Marland Mold a 100% employee-owned company.

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Aegis Associates Atlantic Fasteners Marland Mold


MASSEIO is funded by the Commonwealth of Massachusetts as a program of the Commonwealth Corporation.
Commonwealth Corporation