A CEO who sold her company to its own employees tells founders what the other exit actually costs: the valuation you give up, the debt that slows you down for years, and why the work only starts once the deal closes.
Most founders weighing an exit are choosing between private equity and a strategic buyer. Kerry Siggins took a third road. She is the CEO of StoneAge, a Durango, Colorado manufacturer of high-pressure industrial cleaning equipment, and the company is now owned outright by the people who work there. The founders had competitive offers from private equity and from strategic buyers inside their own industry. They turned all of them down.
They get specific. Kerry explains what an ESOP actually is: a trust that buys the founders’ shares and distributes them to employees on a regulated annual schedule, governed by ERISA, with the stock price set by an independent valuation rather than by management. Then she says the part most advocates skip. You will probably get less money than private equity would have paid you. There is talk of changing how ESOP valuations are calculated, but as things stand the ESOP route pays less, and that is the first decision a founder has to make before any of the rest matters.
She is just as direct about the timeline and the aftermath. Preparing takes about a year. The transaction itself requires a genuine negotiation between the selling shareholders and a trustee representing the future employee-owners, so the final price can be shown to be fair to both sides. Then comes a second year of work getting employees to understand what they now own, because a quarterly distribution feels like an investment and a retirement benefit does not. She explains why most ESOP companies go through a stretch of slower growth: the free cash flow that used to fund capex and acquisitions now services the debt owed to the founders. StoneAge chose to grow slower on purpose until that debt is cleared.
The second half of the conversation turns to the thing she says makes employee ownership work at all, which is a culture where people can say hard things to each other. Her framework for a difficult conversation is that it should be clear, kind, and helpful, and that it should be a dialogue rather than a verdict. She would rather be accurate than right. She screens for the ability to take feedback during interviews, and she walks through the model that replaced twice-yearly surveys at StoneAge: three questions every other month, followed immediately by micro-training for the managers who scored low, so employees can watch their feedback turn into something.
If you are a founder weighing private equity against taking care of the people who built the company with you, this is the honest accounting of the other option.
In this episode: the skin-in-the-game program that existed before the ESOP and the difficult conversation that started the buyout, why engineers and machinists who had bought stock for twenty years still did not want to run the company, what an ESOP actually is and how the trust, the annual valuation and the ERISA rules work, why the founders turned down private equity and strategic buyers, the valuation tradeoff and why an ESOP usually pays less, why succession has to be settled before the transaction rather than after, the negotiation between selling shareholders and the trustee, the shift from quarterly distributions to a retirement benefit and why ownership stops feeling real, keeping the founder on the board and writing the culture down so it can be tested, the debt problem and why most ESOP companies slow down before they speed up, whether you can still acquire while servicing shareholder debt, an ownership model rather than a business model, clear, kind and helpful as a framework for difficult conversations, why she would rather be accurate than right, reading the person in front of you before delivering feedback, hiring for the ability to take it, and the survey model that finally killed lip service.
Disclaimer: All expressions of opinion in this podcast are subject to change without notice and are not intended to be a forecast of future events or results. There is no assurance that any trends discussed will continue or that any projections will be met.