Plant Closings
Thousands of workers around the country have responded to an announcement that their place of work is to be closed by buying their company and setting up an employee-owned company. While not feasible in every situation, worker buyouts using Employee Stock Ownership Plans (ESOP) have led to the creation of many successful employee-owned companies that are profitable and thriving today.
Sometimes the buyout has been led by the local union with support from their international, sometimes by a senior management team and frequently by a joint effort between labor and management. The unique financial benefits of ESOPs often make an employee buyout financially more feasible than purchase by a conventional buyer.
The ICA Group has been working with employee/management groups, unions and state and local development agencies since 1978 to save jobs by structuring innovative buyouts. We provide the basic business planning and transaction structuring on which the transaction depends. We help source the financing, often bringing in our sister financing organization, the Local Enterprise Assistance Fund, and coordinate the team of professional specialists – bankers, valuers, and attorneys – who are needed to complete the transaction.
We work with local leadership to ensure that all employees understand the transaction and their role, rights and responsibilities in the new employee-owned company.
ICA Services For Troubled Companies
ICA works with companies, employee groups, unions, and state and local governments to help employees buy companies that would otherwise be closed by their owners. Frequently, these are companies that have been run down and neglected by their previous owners.
Our work generally involves not only structuring and financing the employee buyout but also, because of the state the companies are in, undertaking a major restructuring and “turnaround” of the company’s day-to-day operations and developing a new long term plan. ICA has an ongoing relationship with a number of state and national unions to do this challenging work.
Over the last 20 years, we have worked on employee buyouts of troubled companies in a range of industries including: steel foundries, industrial molds, apparel, kitchen cooking equipment, specialty wire, paper, construction equipment, forging, wood products and food processing.
The services we provide in a typical transaction are:
Phase I: Preparation
1. Creation of an Employee Buyout Committee to represent the employees during the transaction and to serve as a vehicle for communicating information about the ESOP to the employees.
2. Feasibility Review to determine whether or not the company can be structured as a viable on-going entity, and is financeable.
Phase III: Follow-up
Research on employee ownership has shown that workforce education and participation are key to the ongoing performance of successful ESOP companies. ICA’s education consultants work with management and other employees to design and implement an ongoing, in-house training program to develop the skills and understanding necessary for meaningful employee participation.
Early Warning Signs For Troubled Companies
If you are worried about the future of your company, these are some common signs of a possible plant closing you should learn to recognize so that you will know when to ask your employer questions, or seek outside help.
There are three kinds of signs to look for — Changes in Production, Changes in Personnel Policies, and Changes in Management. But remember, there is no one certain sign that a company may be closing.
Possible Signs of an Imminent Plant Closing
- CHANGES IN PRODUCTION
- Has production at your company been cut back? speeded up? become irregular?
- Has maintenance been stopped or postponed?
- Is there a shortage of supplies, raw materials, or parts?
- Are there fewer product lines than there used to be?
- Have safety conditions declined?
- Is equipment being removed?
- CHANGES IN PERSONNEL POLICY
- Has the company stopped hiring?
- Have there been layoffs?
- Has the work, the number of shifts, or overtime been reduced?
- Are managers or skilled workers moving to another location?
- Is there increased sub-contracting, or use of part-time or temporary employees?
- CHANGES IN MANAGEMENT
- Has the company been sold to out of town owners who do not appear interested in maintaining your plant?
- Is the company owned by an individual who plans to retire and has not given any indications of plans for the company afterwards?
- Have the plant’s managers been replaced by new management which seem less interested in, or capable of, running the plant?
Examples of Worker Buyouts
Injection Mold Manufacturer
In January 1992, when it was about to be closed by its Fortune 500 owner, the 55 employees of an injection mold manufacturer turned to ICA to help them buy the company. Working with the union and their partner Shared Ownership & Management Incorporated (SOMI), ICA assembled the buyout team, developed the business plan, negotiate the terms of the sale, and arranged financing. In September 1992 the employees bought the company and saved their jobs.
Today, the 100% employee-owned company is a prime example of the difference employee ownership can make. United in their role as owners, management and labor were able to put aside old wounds and adversarial habits to work together to make the buyout a success. The results were dramatic. The company went from a loss of (14.3%) on sales under the last year of corporate ownership to a profit of 15% on sales at the end of the first employee-owned year.
The company now employs more than 80 people, fulfilling the promise to preserve and grow job opportunities. But, employee ownership provides more than just stable employment – it builds equity. The average employee who joined the company in the first year has accumulated significant equity in his/her ESOP account.
The impressive accomplishments of these employee-owners have not gone unnoticed. The company has been frequently cited as an outstanding example of employee ownership and was selected as the “1994 New England ESOP Company of the Year” by the New England ESOP Association. In 1994 The Northeastern Industrial Developers Association named them “Entrepreneurial Company of the Year.”
Cooking Equipment Manufacturer
The corporate parent of this east coast cooking equipment manufacturer was ready to shut down operations of this unit in the early 1990s because of unsatisfactory financial performance. The cooking equipment unit was suffering the results of extended neglect by a succession of corporate parents which had owned the company from 1968 to 1991.
All of these shortsighted corporate owners had failed to make adequate investments in research and development, improvements to the plant and equipment or marketing and sales. As a result, from 1985-1991 sales declined by 26% at a time when the industry was experiencing real growth of 1-2% annually.
ICA was retained by the union to assess the feasibility of an employee buyout of the firm. Working with ICA an employee buyout committee comprised of union, clerical and management employees guided the process of developing a business plan, negotiating the terms of a purchase and sale agreement, structuring and raising the financing and developing the Employee Stock Ownership Plan (ESOP). Finally, after prolonged negotiations, 100% ownership was transferred to the employees in late 1993.
During the first year of operation, the company’s performance far exceeded even the most optimistic forecasts. The company launched a major capital investment program to modernize plant and equipment, overhaul management information systems and accelerate research and development in new products. The company recently introduced a line of new products and is well positioned for future growth.