Ownership Dynamics of a Typical Privately Owned Company › resources › Documents › 4-18-18 FEI...

Ownership Dynamics of a Typical Privately Owned Company

Presentation to the FEI NE WI Chapter

Mike Vander Zanden

April 18, 2018

Agenda

• Overview of Amerequip

• Board of Directors

• Disclosure Requirements

• Management Compensation

• Financing Structures

• Ownership Goals

Overview of Amerequip

Amerequip History

• 1920 Farm Specialty Manufacturing Company

• 1924 Arps Corporation

• 1983 Amerequip Corporation - Privately Owned

• 1998 Amerequip Corporation – ESOP

• 2011 Amerequip Corporation – Privately Owned

$21,500,000 $24,300,000

$35,157,000 $34,334,000

$49,448,000

$67,335,000

$55,300,000

$70,200,000

$86,200,000

$99,800,000

$107,300,000

$-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Amerequip Sales By Fiscal Year

OEM Partnerships

Refuse Truck Arms

Facilities Overview

• 15,000 Square Feet

• 20 Team Member

• Office

• Prototype Shop

• 30+ acres testing • .

Engineering

Engineering Center

• New Holstein • 40k Square Feet

• Machining

• Hydraulic Cylinder Assembly

• 30 team members

• Kiel• 325k Square Feet

• Robotic Welding

• Manual Welding

• E-Coat and Wet Spray Paint

• Final Assembly

• Fabrication

• Administration

• Quality

• Manufacturing Engineering

• Financial

• Supply Chain Management

• 300 team member

Production Facilities

New HolsteinHydraulic Cylinders & Machining

KielAdministration, Laser,

Fabrication,Welding, Paint,Final Assembly

Board of Directors

Board of Directors

• Currently 5 board members• Majority shareholder – chairman, CEO, 3 outside

• Quarterly board meetings including executive team

• Compensation is $2000 per meeting with discretionary annual bonus ($0- $10,000)

• 2 committees – Audit and Valuation

• Board Member Term is not defined

The Amerequip Board• Charles Hoke – Chairman

• Currently a member of 6 corporate boards

• 23 Years at First Star Bank

• Don Van Houweling – Member

• Currently CEO/Owner Van Wall Group (since 1977)

• Leading John Deere Dealer, 4 states, 13 stores, 270 employees

• 9-years in the John Deere Executive Development Program

• Mike Ferrell – Member

• Former Chairman/CEO Sentry Equipment Corporation

• Former officer US Navy prior to joining Sentry Equipment Corporation

• Tom Durkin – Member

• Senior Vice President Asten Johnson Inc. (1987)

• $300 million global company with 1800 associates in the markets of Paper Machine Clothing, Specialty and Monofilament

• Graduate of United States Military Academy, West Point, NY and Harvard Business School, Boston, MA

Disclosure Requirements


• No outside reporting necessary as private co.

• Financials are shared with:• Owners

• Executive Team

• Bank

• Audit and tax preparation costs ~ $70,000 per year

• No impact with federal/SEC regulations as private company

Management Compensation


• Sr. management compensation not impacted by ownership structure

• Sr. management compensation is salary and annual discretionary bonus

• A SAR’s plan exists for key resources not present at buyout in 2011

• No option plans exist

Financing Structure

Financing Structure

• Companies financing is through bank debt (term & LOC) and investors initial investment

• As a Sub S taxes are pass through

• Cash is used to fund growth, expansions, debt, and investors dividend (90%/10%)

Ownership Goals

Ownership Goals

• Long term goals of shareholders –• Growth - $24M in 2011 to $100M by 2020

• State of the art with core competencies and remain vertically integrated

• Provide unique solution to OEM’s – design and contract mfg.

• Committed to the community

• Improve financial stability of team members

• Do things for the right reasons and live our values

• Value creation is measured by independent annual valuation

Thank You!

Excellence is not achieved by chance, excellence is a matter of

desire and discipline!

WEIDERT GROUP

Employee Stock Ownership Plan

(ESOP) Basics

April 2018W

W 32W

What’s WEIDERT GROUP?

> A B2B Inbound Marketing firm

> Leading HubSpot Certified Partner

> 23 FTE based in Appleton

> 100% ESOP launched 3/31/17

W 33W

What’s Inbound Marketing?

> Lead Attraction & Customer Delight

> Centered on online content publishing

> Leveraging marketing automation, Google, and social

media

> Delivering measurable ROI and continuous

improvement!

W 34

Ready to Get to Know Our ESOP?

W 35

Hi.

I’m the Weidert Group ESOP.

I’m a qualified retirement plan.

(Kind of like a 401(k) but more special.)

Wanna know why?

W 36W

WHAT’S SO SPECIAL ABOUT ESOPs?

> Only 7,000 companies and 11M employee owners in the

U.S. (less than 10% of workforce)

> Benefit 100% funded by Weidert Group

> Beneficial ownership — you get the benefit without the

legal responsibilities or risk of direct ownership

> You can impact the value of your retirement account

through the work you do every day!

Source: The ESOP Association, 2015 annual survey

W 37

1. Company sets up ESOP and establishes ESOP trust

2. Company makes annual contributions

3. Contributions invested in Weidert Group Stock

4. You become vested in your account balance over time

5. After you leave, paid vested value of account

(subject to plan rules)

HOW IT WORKS

W 38

Employees in an ESOP company

• 2.5 times greater retirement accounts

• 25% higher job growth rate

• 25% more likely to stay in business

Source: National Center for Employee Ownership, 2013

REAL BENEFITS

W 39

ESOP

Sold stock to company(paid with 10-year notes)

Previous Owners

HOW WE GOT HERE: THE ESOP TRANSACTION

Sold stock to ESOP trust (paid with 30-year note)

W 40

Now owns the stock

ESOP

1. Company makes cash contribution to ESOP

ESOP

ShareShare Share

ShareShare

Share

OVER TIME: ANNUAL CONTRIBUTION PROCESS

$1 $ 2

3

2. ESOP makes loan payment to company

3. As loan is repaid, shares of stock go into individual participant accounts

41

you’re in the plan / on the job responsibility

Employee Owner

represents the plan as an owner / legal responsibility

ESOP Trustee(Professional Fiduciary Services)

Retirement Plan

is the OwnerESOP

YouYou You

YouYou

You

Company Managementstays the same

W 42

PLAN BASICS

W 43

GETTING INREQUIREMENTS:

> Age 21

> 90 days employment

ENTER:

> 1st of the next month

**Exception: if employed on

December 31, 2016, you’re in!

W 44

CONTRIBUTIONSMADE ANNUALLY (as of Dec 31)

> By the company, not you

REQUIREMENTS:

> To receive a portion of the company’s

contribution each year

1,000 hours of service

during plan year

Exception: requirements waived if you leave due to retirement (age

62 + 5 yrs participation), death, disability in year of such event

Be employed on

Dec 31

4545

$40,000 / $2M = 2%

YourEligible Comp Total Comp

YourPercentage

2,000 shares x 2% =

TotalContribution

YourPercentage

YourPortion

40 shares

CONTRIBUTIONS: DETERMINING YOUR

PORTION

Simplified example for illustrative purposes only

Based on your eligible compensation, in proportion to total

1

2

W 46

VESTINGEARNING YOUR

ACCOUNT OVER TIME:

> 20% each year w/

1,000+ hours of

service

> 100% after 5 years

> Begins on ESOP

effective date (or your

hire date if later)

*Exceptions: 100% vested if

leave due to death, disability, or

retirement (age 62 + 5 yrs

participation)

0%

20%

40%

60%

80%

100%

<1

1

2

3

4

5

YEAR VESTED %

W 47

VALUING COMPANY STOCK

• At least annually (as of Dec 31)

• Trustee determines

fair market value

Hires independent financial

advisor

• Takes several months

Jan1

Valuation

process

begins

Valuation

complete

Apr1

W 48

ANNUAL ADMINISTRATION TIMELINE

Jan1

Books closed;

Valuation

process begins

Valuation

complete

Apr1

12/31

PYE

Admin process occurs:

- Contribution allocated

- Vesting & balances

updated

- Statements produced

May1

Simplified example for illustrative purposes only; actual timeline may vary from year to year

Jul1

Distribution

period for

eligible former

employees

(see SPD)

WHAT DOES IT ALL MEAN?

4

1 RETIREMENT

ESOP 401(k)+

2 PLANS

( )

51

Client retention

Client profitability / billable hours

New client attraction

Reducing expenses

WHAT INFLUENCES OUR STOCK

VALUE?

KEY PROFITABILITY DRIVERS

COMPANY

PERFORMANCE

1

2

3

4

THANK YOU.

While this communication may be used to promote a transaction or an idea that is discussed in the publication, it is

intended to provide general information about the subject matter covered and is provided with the understanding that

Weidert Group is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other

advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. In addition, if anything in

this simplified summary conflicts with the ESOP plan documents, the plan documents govern in all cases.

Ownership Dynamics of a Typical Private Equity-owned Company

Jay Radtke

April 18, 2018

54

Agenda

• Overview of Mason Wells

• Board of Directors

• Disclosure Requirements

• Management Compensation

• Financing Structures

• Ownership Goals

© 2018 Mason Wells

56

• Founded in 1982 as a subsidiary of Marshall & Ilsley Corporation (M&I)

• Became an independent firm in 1998

• Closed more than 50 transactions in over 20 years of business

• Cohesive leadership team with an average tenure of 20 years with Mason Wells

• Currently seeking investments for $615M fund raised in 2016

• Our philosophy: “Invest in people” (vs. buy companies)

Mason Wells Background

© 2018 Mason Wells

Mason Wells Investment Strategy

© 2018 Mason Wells 57

HQ in Midwest Region

Closely Held / Family-Owned BusinessesTargeted Industries

Lower Middle Market

• Company Revenue $25 - $300M

• Company EBITDA $5 - $30M

• Transaction Value $25 - $250M

• Assist in strategic planning

• Focused on growth

– Internal via capex investment

– External via tuck-in acquisitions

• Deep Midwest executive network

• Value Creation System drives results

Consistent Track Record of Fox Valley Region Investments

Board of Directors


Proven Value in Leadership


Vision

• Corporate Mission

• Ultimate Structure

• Corporate Culture

• Financial Goals

• Business Philosophy

• Competitive Positioning

• Growth Strategy

• Acquisition Strategy

Tactics

• Planning Philosophy

• Benchmarking

• Market Plan

• Operating Plan

• Financial Plan

Implementation

• Management Philosophy

• Organization & Work Design

• People Selection & Development

• Rewards & Compensation

• Information Systems

Strategy

Management

CEO

Board of Directors

Board of Directors

• Typically 5 – 7 board members– CEO, two Mason Wells partners and 2 – 4 outside board members

– Mason Wells partner serves as Chairman

• Board controlled by Mason Wells

• Compensation for outside board members– Fee paid per meeting and opportunity for director stock options

• Quarterly board meetings

• Executive Committee– Allows for quick decision making

– Consists of CEO and two MW partners

• Typically do not have formal audit, compensation, management or other sub-committees



• No outside reporting as long as a private company

• Share company financials with the following constituents:– Senior management team

– Outside investors and lenders

– Limited partners

• Disclosure costs are fairly minimal– Annual audit and tax preparation costs are typically < $100,000 per year

• However, overall fund reporting disclosure required by the SEC is

increasing No impact at company level though– Impact of Dodd-Frank legislation

63© 2018 Mason Wells


• Equity compensation opportunities– For certain senior managers (most senior 5 – 10), there may be an opportunity to invest equity

directly into the initial transaction pari passu

– Opportunity to receive option grants (typically a combination of time and performance vesting)

– Opportunity for previous owners/managers to re-invest into Newco equity

• Compensation package will typically be a combination of a base salary, bonus

and equity (either purchased or via options)

• Annual Value Creation bonus pool is provided for 5-10 senior managers– Bonus levels of remaining managers is determined by CEO

– Bonus plans for senior managers are often tied to Equity Value Creation (example on next page)


How is Value Creation Measured and Compensated?

• Focus is on creating sustainable equity value by managing the levers of

Profitable Growth, Margin Improvement and Capital Management

• Management is in control and knows targets – simple formula

• Not subject to the stock market

($ in 000's) Management Forecast

@ Closing Year 1 Year 2 Year 3 Year 4 Year 5

EBITDA $10,000 $11,000 $12,100 $13,310 $14,641 $16,105

Multiple 6.0 x 6.0 x 6.0 x 6.0 x 6.0 x 6.0 x

Enterprise Value $60,000 $66,000 $72,600 $79,860 $87,846 $96,631

Less: Net Debt $35,000 $30,000 $25,000 $20,000 $15,000 $10,000

Equity Value $25,000 $36,000 $47,600 $59,860 $72,846 $86,631

Annual % Change 44.0% 32.2% 25.8% 21.7% 18.9%

Y/Y Equity Value Creation N/A $11,000 $11,600 $12,260 $12,986 $13,785


Typical Transaction Structure

• Mason Wells is a Control investor:

• Own >50% Voting Securities

• Often senior management and co-investors invest in the equity pari passu

• Balance investments in business (R&D and capex) for growth vs. paying

down debt (typically don’t pay annual dividends to shareholders)

Representative Financial Structure:

Senior Debt (Club Deals)

• Revolver

• Term/Capex Loans

Mezzanine

Total Leverage

Equity

• Preferred Stock (8%PIK)

• Common Stock

Total Purchase Multiple

Multiple of EBITDA

2.0x – 3.5x

0.5x – 1.0x

2.5x – 4.5x

3.5x – 4.0x

6.0x – 8.5x


Ownership Goals


Ownership Goals

• Mason Wells’ objective is to grow and improve a company over 4 – 7 years– Seek to build market leaders and “winning teams”

– Maintain community presence and grow employment

• Attempt to have most of the major investments done in the first 2 – 3 years– Upgrades for modern equipment and facilities

– Enable major investments and acquisitions that may not have been possible previously

• Often management comes to us after 5 - 6 years saying that we have completed

all of the goals and makes sense to consider partnering with someone new

– Occurs majority of the time

• If all of the above occurs, then most likely there will be an attractive return to the

shareholders

• Can be a significant wealth creation opportunity for management


Contacts

71

411 East Wisconsin Avenue Suite 1280 Milwaukee, WI 53202

Tel 414/727-6400 Fax 414/727-6410

www.masonwells.com

Jay Radtke

(414) 727-6405

[email protected]

© 2018 Mason Wells

Legal Disclaimer

The following contains information about Mason Wells’ business and the presenter’s views regarding industry

conditions and trends. The information has been aggregated from several Mason Wells funds solely for the

purpose of illustrating combined industry experience, as all of the funds have been managed by substantially

similar advisory personnel. The views and opinions expressed herein do not constitute a recommendation to

make any investment, a prediction of future performance, or a representation of past performance or

profitability. Any forward-looking statement contained herein is not and cannot be guaranteed.

The results shown and strategies described in the following material should not be considered indicators of past

performance of any Mason Wells fund or such fund’s manager or of the future performance of any such fund,

such fund’s manager or of any company owned by such fund. Such information is provided solely to describe

transaction types, management style, industry experience, and methods used by such fund’s manager.

Any charts, graphs, formulas, or other methods of portraying or summarizing results are illustrative only and,

while helpful for such purposes, are of limited use for making investment decisions and should be viewed only

with relation to other information regarding potential investments, as they are summary in nature.

Each Mason Wells fund is managed on a discretionary basis by the fund’s manager, with the objective of

acquiring interests in companies believed to have significant growth potential. As a matter of convenience,

these managers and funds are sometimes collectively referred to herein as "Mason Wells." Similarly, asset

numbers for any given fund may include the assets of related side-by-side funds. For more information, please

see our website at http://www.masonwells.com.


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