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Succession Planning for Purchasing Coops

& Their Members December  6,  2016  

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INTRODUCTIONS  

Bryan  Munson    

NCBA-­‐CLUSA  

Jack  Bailey    

Independent  Distributors  CooperaEve  

Alison  Lingane    

Project  Equity  

Stephen  Irvin    

Amicus  Solar  CooperaEve  

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AGENDA  

1.  Intro  to  purchasing  coops  and  their  succession  challenges  

2.  Selling  to  employees  via  a  worker  coop    

3.   Perspec(ve:  Independent  Distributors  CooperaEve  4.   Perspec(ve:  Amicus  Solar  CooperaEve  

5.  RecommendaEons  for  purchasing  coops  

   

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Purchasing  Co-­‐ops  &  A  Sustainable  Future  

•  Basics  of  a  Purchasing  Co-­‐op  

•  NCBA  CLUSA  and  it’s  Purchasing  Co-­‐op  Members  

•  Succession  Planning  &  Working  w/  Project  Equity  

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Employee  Ownership   CooperaOves  

Worker-­‐  Owned  Coops  

ESOPs  

Stock    grants    

Housing  Coops  

Consumer  Coops  

Purchasing  Coops  

What  are  worker-­‐owned  cooperaOves?  

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Employee  Ownership   CooperaOves  

Worker-­‐  Owned  Coops  

ESOPs  

Stock    grants    

Housing  Coops  

Consumer  Coops  

Purchasing  Coops  

What  are  worker-­‐owned  cooperaOves?  

 

Businesses  that  are    owned  and  governed    by  their  workers  

 

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Employee  ownership  brings  significant  benefits  

All  citaEons  are  in  Worker  Coopera(ves:  Pathways  to  Scale  

TO  WORKERS  ü  BeWer  pay  and  benefits  ü  Assets  (business  ownership)  ü  A  voice  in  key  decisions  

TO  BUSINESSES  ü  Higher  producEvity  and  growth  ü  Lower  employee  turnover  ü  Improved  business  longevity  

TO  SOCIETY  ü  Local  spending  mulEplier  ü  Higher  voEng  levels  ü  CorrelaEon  with  other  social  benefits    

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A  coop  conversion  is  a  sale  of  a  business  

Typically  financed  by  lenders  or  investors  

to  a  new  worker  coop  

Worker  Coop    Business  Owner  

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“Trillions  of  dollars  of  business  value  are  going  to  change  hands  in  the  next  10  to  20  years.”  

Image:  BreW  Ryder,  The  Economist  Quote:  Bob  Balaban,  Headwaters  MB,  a  Denver-­‐based    investment  bank    

Silver  Tsunami  

“Most  of  us  in  the  purchasing  coop  world  exist  to  help  independent  or  family  owned  distributors  remain  independent.”    

–  Jack  Bailey,  IDC  

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Independent  Distributors  CooperaOve  –  USA    

•  In  the  beginning  there  was…  –  The  sleeping  giant  industry  –  David  vs.  Goliath  –  The  folding  card  table  –  Early  challenges  –  A  cooperaEve  success  story!  

•  The  challenges  and  current  approach  –  Baby-­‐boomers  exit  stage  right  –  Behemoths  eaEng  everything  in  their  path  –  ConfidenEal  business  matchmaker  

•  The  need  for  an  “Easy”  buWon  

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Amicus  Solar  CooperaOve  

•  Who  is  Amicus?  –  Founded  in  2011  –  Solar  energy  industry  –  41  member-­‐owners,  solar  PV  development  and  installaEon  companies  –  Provide  our  members  the  benefits  of  naEonal  scale,  without  sacrificing  

their  independence  and  local  community  impact  

•  Succession  issues  among  member  companies  –  What  are  the  pressures  specific  to  the  solar  industry?  –  Impact  of  Amicus  led  workshops  during  our  member  meeEngs  –  “Live”  examples  of  Amicus  members  converEng  to  worker  

cooperaEves  or  employee-­‐ownership  •  Technicians  for  Sustainability,  Sun  Light  &  Power,  SunBug  Solar  

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RECOMMENDATIONS  Industry  affects  fit  with  worker  coop  conversion  

Stronger  fit  ü  Succession  pain  among  member  

companies  

ü  Familiarity  with  employee  ownership  or  cooperaEves  

ü  Growing  industry    

ü  Member  company  engagement  with  purchasing  coop  

Weaker  fit  ü  Individual  licensing  required  

(contractor,  pharmacist,  etc.)  

ü  Strong  outside  acquisiEon  pressures  (cash  rich  public  companies  or  others)  

ü  Intense  compeEEve  and  margin  pressure  

ü  Majority  of  members  are  fewer  than  20  employees  

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Succession  planning  •  Include  employee  ownership  experts  in  succession  planning  

sessions  at  annual  meeEng  and  technical  trainings    

•  Set  up  1:1s  for  specific  members  with  succession  planning  experts  who  understand  employee  ownership.  Make  it  OPT  OUT.  

•  Share  stories  from  owners  who  have  sold  (good,  bad,  ugly)  

•  Tap  outside  resources  –  Employee  ownership  experts  can  provide  a  clear  path  and  roadmap  –  Contract  out  for  educaEonal  sessions,  appointment  seing,  iniEal  

consultaEons  with  target  member  companies  

   

RECOMMENDATIONS  EducaOon  programs  purchasing  coops  can  implement  

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What  to  do  if  approached  by  an  outside  acquirer?  Distribute  a  4x6  card  for  owners  to  put  up    

STEP  1    Call  me!  STEP  2    An  NDA  does  not  mean  you  can’t  talk  to  other  potenEal  buyers  STEP  3    No  family  successor?  No  other  member  company?  Consider  your  employees!  

RECOMMENDATIONS  EducaOon  programs  purchasing  coops  can  implement  

Keeping  businesses  independent  

Family  successor  

Member  business  acquirer  

Employee  ownership  transiEon  

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•  Succession  planning  rarely  feels  urgent,  unEl  it  is  …  

•  Regular  drumbeat!  

•  Member  match  making:  ConfidenEal  buy  /  sell  lists  

•  Tap  outside  resources  

•  Integrate  member  retenEon  into  purchasing  coop  execuEve  compensaEon  /  bonus  plans  

RECOMMENDATIONS  Being  proacOve  ma`ers  

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•  Financial  feasibility  •  Employee  interest  •  Assess  leadership  transiEon  opEons  

•  Timeline  and  roadmap  

•  Plan  leadership  transiEon  

•  Sales  agreement  •  Financing  •  Set  up  coop  •  Employee  educaEon  

•  Execute  sales  agreement  

•  Close  financing  •  Finalize  bylaws  and  governance  

DECISION  TO  PURSUE   FORMAL  COMMITMENT   SALES  TRANSACTION  

Assess   Prepare   Convert  

6  to  18  months                    

Selling  to  employees  through  a  worker  coop  

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Financing  example:  Island  Employee  CooperaOve  

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Island  Employee  CooperaOve  Debt  

     Bank  (Senior)   $1,800,000  

     CDFI  #1  (Senior)   $1,000,000  

     CDFI  #2  (Senior)   $800,000  

     Seller  (Sub.)   $1,500,000  

     Grocer’s  AssociaEon          (inventory  loan)  

$500,000  

Total  Sources   $5,600,000  

     Purchase  of  Business   $4,250,000  

     Inventory   $930,000  

     Working  Capital   $175,000  

     Closing  Costs   $130,000  

     Technical  Assistance   $115,000  

Total  Uses   $5,600,000  

Member  Equity  1%  

Senior  Debt  63%  

Sub.  Debt  26%  

Inv.  10%  

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QUESTIONS?  

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Jack  L.  Bailey,  JD  President  &  CEO  IDC-­‐USA  jbailey@idc-­‐usa.com  317-­‐244-­‐9200  

   

Stephen  Irvin  President  &  CEO  Amicus  Solar  CooperaEve  stephen.irvin@amicussolar.com  (303)  872-­‐9116        Bryan  Munson  

Manager,  Business  Development  NCBA-­‐CLUSA  bmunson@ncba.coop  (202)  471  –  0900  

Alison  Lingane  Co-­‐founder  Project  Equity  alison@project-­‐equity.org  510-­‐684-­‐6665