Succession Planning for Purchasing Coops: How to Engage Members in Their Future

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Succession Planning: How to Engage Members

in Their Future

March 28, 2017

For Purchasing Coop Execu3ves Make the business case internally and

help members understand succession op3ons

© Project Equity and Castle Wealth Advisors 2017

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INTRODUCTIONS

Bryan Munson

NCBA-‐CLUSA

Gary Pi9sford, CFP®

Castle Wealth Advisors, LLC

Alison Lingane

Project Equity

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AGENDA

1. Making the business case

2. MarkeJng succession planning to members

3. Understanding the opJons

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Making the Business Case: Reduce A9riLon

1.   Educate members –  RealisJc business valuaJons –  Different avenues for selling –  What to do if approached by a non co-‐op member buyer –  How to plan for succession –  How to get started

2.   Encourage the next generaLon –  EBITDA to appraised value = 23.6% –  EBITDA to stockholders equity = 36.89%

3.   Protect cooperaLve –  Income –  Membership numbers –  Financially stronger members

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MarkeLng Succession Planning to Members

•  Provide educaJon on many levels –  Classroom, videos, arJcles –  One-‐on-‐one meeJngs –  Surveys –  Exclusive webinar for members –  Data, how to’s and stories

•  Field staff handouts •  MulJ year process

–  Succession/exit planning can not be learned in one class or one year

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Understanding the OpLons

SUCCESSION OPTION

KEY POINTS

GOOD FOR CO-‐OP?

Close down

•  Last resort •  Lose enterprise value ✗

AcquisiLon •  Sale outside the co-‐op •  All cash is good for seller •  All stock is not good for seller

✗ Sell to family

•  Good long term plan •  Financially good for parents and children •  Need to groom management

✔ Sell to another member

•  All cash sale is good for seller •  Seller is secure ✔

Employee ownership •  ESOP •  Worker coop

•  Good for employees •  Good for seller, potenJal tax breaks •  ESOP is more expensive b/c highly regulated •  Requires leadership succession

✔

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Close Down

•  This is what we’re aiming to avoid by being pro-‐acJve about succession planning –  Lose enterprise value –  Customer base –  Last resort

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AcquisiLon

•  Discuss roll-‐ups

•  Discuss compeJJve companies

•  Impact on employees

•  Many of these don’t work

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Sell to Family

•  Discuss a typical family plan –  ValuaJon for family transfer –  Gia some stock –  Sell remainder with promissory note or bank loan –  ConsulJng fees –  Rent on building –  Other benefits

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Sell to Another Purchasing Co-‐op Member

•  Discuss a typical plan: member to member sale –  ValuaJon for selling to non-‐family –  All cash –  Buy assets, not stock –  Some consulJng for short Jme –  Triple Net lease

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Employee Ownership CooperaLves

Worker-‐ Owned Coops

ESOPs

Stock grants

Housing Coops

Consumer Coops

Purchasing Coops

Employee Ownership

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Worker CooperaLve Conversion

•  Business owned and governed by their workers –  100% employee ownership, high employee engagement –  Board of Directors made up of majority worker-‐owners –  Profit-‐sharing via patronage, based on hours worked

•  Flexible business form (Co-‐op Corp, LLC most common)

•  PotenJal significant federal tax benefits

•  Lower cost

•  Financed: employees don’t come up with 100% of the sale price on their own

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ESOP -‐ Employee Stock Ownership Plan Overview

•  All or a porJon of the company’s shares are held in a trust on behalf of the employees

•  ReJrement benefit, regulated by ERISA / DOL

–  Qualified defined-‐contribuJon employee benefit plan designed to invest primarily in the stock of the sponsoring employer

•  PotenJally significant federal tax benefits at >30% of stock held by the ESOP

•  High set up and ongoing costs

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Employee ownership forms

Worker co-‐op

DemocraLc ESOP

ESOP

100% employee ownership ✔ Recommended SomeJmes

Built in profit-‐sharing ✔ Recommended

DemocraJc governance ✔ ✔

PotenJal seller tax breaks ✔ ✔ ✔

Annual valuaJon req’d (ERISA / DOL regulated) ✔ ✔

Suitable company size? All sizes Large Large

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What Purchasing Co-‐op Leadership Should Know

SUCCESSION OPTION

WHAT YOU NEED TO KNOW

GOOD FOR CO-‐OP?

Close down

•  Support financial success of members; share financial benchmarking

•  Last resort ✗

AcquisiLon •  Educate members: what to do if approached by acquirer

•  >50% stock sale may be a bad idea ✗

Sell to family

•  Good long term plan •  Help members assess / plan for this opJon ✔

Sell to another member

•  Maintain confidenJal buy / sell lists •  Help members understand this can be an opJon ✔

Employee ownership •  ESOP •  Worker coop

•  Financial feasibility is first step •  For a worker coop, also employee interest •  ESOPs are more expensive; higher pot’l tax breaks •  DemocraJc ESOPs build in employee engagement

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Stay tuned for Parts 2 & 3 of this webinar series, leading up to October Purchasing Co-‐op Conference

þ  Part 1: Succession Planning: How to Engage Members in Their Future

q  Part 2: AcquisiJon & Selling to Family, Late Spring

q  Part 3: Selling to Another Member & Employee Ownership, Summer

q  Purchasing Co-‐op Conference: Oct. 4-‐6 in D.C.

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QUESTIONS?

Gary Pi9sford, CFP® President and CEO Castle Wealth Advisors, LLC [email protected] 317-‐849-‐9559

Bryan Munson Manager, Business Development NCBA-‐CLUSA [email protected] (202) 471 – 0900

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

Date post:	16-Apr-2017
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