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Dive Brief:
- Phoenix-based Willmeng Construction is one of Arizona’s largest privately held commercial general contractors become a 100% employee-owned companythe builder announced last month.
- With the launch of its employee stock ownership plan, Willmeng, with more than 350 employees, became the second employee-owned general contractor based in Arizona, according to the release.
- The decision to become an ESOP was made even though several construction companies have expressed interest in a possible merger or acquisition, CEO James Murphy said in the statement. “We have every interest in continuing to partner with these outstanding companies, but it was important to us to maintain our culture and preserve our offering to our customers by continuing to invest in our people,” Murphy said.
Diving knowledge:
ESOPs can be attractive to midsize or large companies with stable operating cash flows and low debt that are looking to move forward with an ownership transition, said Brad Werner, leader of the construction and real estate practice at the accounting firm of Milwaukee Wipfli.
ESOPs often involve a company taking on debt to buy out an owner who leaves when they retire. Employees then take collective ownership through company shares, but also inherit the debt used to finance the transaction.
The ESOP structure is popular among construction companies as a way to have a seamless succession plan while allowing owners to walk away with a late-career windfall. Eight of the top 20 places The National Center for Employee Ownership lists AEC companies such as:
- HDR based in Omaha, Nebraska.
- Black & Veatch, based in Overland Park, Kansas.
- Burns & McDonnell Engineering based in Kansas City, Missouri.
- Rosendin Electric based in San Jose, California.
Werner said ESOPs give longtime owners partial or full liquidity through a relatively simple structure.
“I think there’s an element of preserving the legacy,” Werner told Construction Dive.
However, Werner also said that creating an ESOP can add significant liability to a company’s books, along with 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 about the debt and his own transition to the ESOP other than to stress the importance of retaining talent and careful succession planning at launch.
“Our culture and foundation is built on great results for our clients. To do that consistently, you must recruit and retain the best in the industry,” Murphy said. “The transition to an ESOP is a way to double down on the expansion of this successful formula: retaining the most talented and thoughtful builders in the industry.”
He added: “In the end, the decision was very clear. We are a young team, resolving the long-term succession through decisions from within in perpetuity was the clear and correct answer. Our employees have earned it, there is no there is no doubt”.
The largest employee-owned general contractor based in the state is Tempe, Arizona-based Sundt Constructionwhich has 3,900 employees and is tied for 30th nationally in size among all ESOP companies, according to the NCEO.
