California-based electrical equipment manufacturer ESL Power Systems, Inc. has become a fully 100% employee owned company through an Employee Stock Ownership Plan (ESOP).
ESOP was developed in the US as a mechanism to facilitate the owners of family-owned and privately held businesses to transfer ownership to their employees over time in a tax efficient manner. It was set up to create a market for the shares of a departing owner or a closely held company in a way that preserves the independence of the business and protects employment.
ESL Power Systems was a very good fit for an ESOP. Established in the early 1990s, second generation owners Michael and David Hellmers have no plans for immediate retirement, but recognised that family ownership will ultimately limit ESL’s workforce of over 100 people from growing and building the company to its full potential. Both will stay on at the company and lead a management team of seven executives following the buyout.
This type of transaction is unusual in the manufacturing sector that WorldCargo News covers, where there have been many sales and acquisitions of family-owned companies in the last decade. At the moment there is a strong M&A market in the USA, particularly for “roll-ups” of manufacturing companies in niche markets. Michael Hellmers said “ESL considered these types of deals, but decided on the ESOP scheme as the best and most fair option for employees that have put their energy into growing the business”, as well as being a tax efficient way to preserve the longevity of the company.
The transaction is fully funded using bank financing, and Hellmers does not expect it will have any adverse impact on the company’s ability to borrow to invest or expand.
ESL had its best ever year in 2018, and bookings for 2019 are even stronger. The company is moving forward with several lean manufacturing initiatives, and has several new product lines in development. It is also leveraging developments in automation and new technologies like 3D printing that enable small manufacturers like ESL to do more of their production in-house.
ESL is currently installing its first automated welding system, and is also using 3D printing to design and print some small run parts, refine AutoCAD drawings and then “print” larger quantities with specialist 3D printing shops.
Hellmers said new technologies like automation and 3D printing are a “game changer” for a manufacturer like ESL. The company has built its reputation on engineered safety, product quality and in-house support. It now has more options for continuing to service its products over a relatively long lifetime without having to stock a vast inventory of spare parts.
With regard to future growth, ESL is well poised to take advantage of the growing trend towards equipment electrification. It recently introduced a new product called eTRUconnect for connecting a refrigerated truck-trailer to electrical power while it is in an area where idling is restricted, and there are other opportunities in shore power for vessels, ERTGs and RMGs. The time was right to move forward with a new structure that rewards and empowers employees to take advantage of these opportunities while maintaining the culture of the company, concluded Michael Hellmers.