Shownotes
We weren't aware of ESOPs before this conversation, and chances are you haven't heard of them either.
Employee Stock Ownership Plans can drastically change how you run your business and transform the lives of your employees.
Publix is one of the best examples of making their employees' lives better. Cashiers who may never make more than $20 an hour but stay there 20-30 years retire as multimillionaires because of employee ownership.
Matt Middendorp helps business owners understand this transition option that most have never heard of.
He started working at an ESOP company in college without knowing what it meant, but recognized the culture felt completely different from corporate retail. People collaborated and took ownership of problems instead of waiting for someone else to solve them.
Matt Middendorp helps business owners explore this transition option. He started working at an ESOP company in college without knowing what it meant, but recognized the culture felt completely different from corporate retail.
People collaborated and took ownership of problems instead of waiting for someone else to solve them.
We talk about how ESOPs work, why they offer better tax benefits than other transitions, what makes a business a good fit, and how this approach solves problems for both owners looking to exit and employees building toward retirement.
Highlights
- How employee ownership changes company culture when people take ownership of problems instead of waiting for others to solve them.
- Why ESOP companies grow faster than non-ESOP companies once employees have real financial stakes in success.
- The tax advantages that make ESOPs attractive for both sellers and companies compared to other transition options.
- What makes ESOP transactions collaborative instead of the combative due diligence process with private equity or strategic buyers.
- How long-term employees build wealth that solves the retirement gap many Americans face.
Make sure to subscribe to Blue Collar BS where we talk about the real gaps between generations in blue collar work and what it takes to lead across different age groups in today's trades. Be the first to hear conversations like this that introduce options you didn't know existed and challenge what you thought was possible in business.
Get in touch with Matt:
Phone - 715-897-0879
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Transcripts
Welcome back everyone to this episode of Blue Caller BS. I'm your host today, Steve Doyle. Brad has earned some well earned vacation with his family, so he is off doing his vacation thing. So we'll leave him with that. But today we have a phenomenal guest, Matt Middendorp, Director of ESOP Consulting at Vision Point Capital. He's a seasoned entrepreneur and dedicated ESOP advocate with a rich background in banking and consulting.
He has multiple degrees. He began his career at an ESOP-owned company during college, of all things. He fosters a passion for the unique ESOP culture. Matt is also an award-winning banker and business owner who now dedicates his expertise to educating business owners on employee ownership and its potential fit for their firms. He's a frequent industry speaker, a guest contributor, and he brings a depth of knowledge to the conversation. Beyond work?
and we may be even getting into this is Matt embraces musky fishing, some storm chasing and fossil digs. So Matt, welcome to the show.
Matt Middendorp (:Thanks so much for having me on. Whoever wrote that's pretty good. But I do think we have to acknowledge that Brad, let's just be realistic, he's tailgating at Amfam for a couple of days before the Brewers playoff game tomorrow. That's where he's at. Yeah.
Doyle (:Yeah!
Doyle (:I mean, I do know that. So I appreciate the honesty and you know what? All digs on bread are fair game. So I mean, who wouldn't want to tailgate there? like, by all means. So Matt, before I forget, which generation do you fit in
Matt Middendorp (:I'm not even sure that's a dig. I admire that. Are you kidding me?
Matt Middendorp (:Hahaha
Matt Middendorp (:Well, technically born Gen X. Maybe a late Gen X though, right? So, I don't know, does that make me the lost generation? Is that what they call us? The latchkey kids, all that good stuff.
Doyle (:Alright?
Doyle (:you know, you fit in with Brad. I'll just call you Boomer.
Matt Middendorp (:So we've been co-opted, that what you're saying? Gen X is we're not boomers. Okay. Well, for anybody who don't hold that against me, just like don't want to the banker label against me either, please. We reformed.
Doyle (:Yeah,
Doyle (:it's all good. It's all good. So a lot of ESOP, how did you even? Why? How did this path even come up for you? As you, you know, during college? That's been your life. So tell us how.
Matt Middendorp (:man.
Matt Middendorp (:It's weird, right? It's one of those things where you just, when you look back, you don't recognize the theme until you get to a point where you recognize, yeah, there's a trend here. Yeah, I worked for an ESOP in college. I went back to school when I was 25. I went to school during the day. I ran inventory for a book publisher in second shift. And we printed children's books. So if you ever read Where the Wild Things Are, Curious George to Your Kids, that kind of stuff, if it was printed in the US, we probably did it, which was awesome. I loved working there. And it was an ESOP.
Doyle (:Good.
Doyle (:Mm-hmm.
Doyle (:yeah? yeah.
Matt Middendorp (:But I, at 25 years old, had no clue what that meant. But coming from a retail management background before that, before I decided to go back to school and work second shift there, really recognized that the culture was very different. Now, I didn't know if it was because it was corporate retail versus local, know, ESOP company or not. I didn't know that. But man, when you've got a place where you're collaborating.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Hmm. Okay.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Matt Middendorp (:where people are taking ownership of the challenges in front of them. They're looking at this and they're saying, okay, we've got a problem we need to solve. We're not gonna leave it up to them to solve it. We're all gonna work together to figure this out. It was a pretty powerful place to be, even if I didn't know why at the time, but looking back, it's pretty obvious. So yeah, so then I end up in banking and somehow throughout my banking career, ESOP continued to be a...
Doyle (:Right?
Doyle (:Mm-hmm.
Matt Middendorp (:a theme through that as well with companies that were ESOP companies I worked with, the WEN ESOP, always got to see the really cool financial benefits. So we talk a lot in the ESOP space about how companies improve. You're making your company better off after becoming an ESOP. And it was neat to be in a position, I can't say I was an uninvolved neutral third party, but at least somebody who wasn't really involved in that decision making, see those promises come true in every instance. I had a business.
Right. So, so I believe I'm uniquely suited to do this because I get it. I get as an entrepreneur, in a way that I didn't once upon a time, you know, I'm thinking about this from the minute I get up until the minute I go to bed, how is my business going to be better? How can I make more money? How can I take care of my, my team's better and my client's better. Right. So, so it's one of those things where when I had, my own business, it's like, man, I didn't get it when I was a banker, how much being a business owner consumes you.
Doyle (:Yeah, I mean.
Matt Middendorp (:But then you get to a point where, yeah, where you start to, where you're one yourself and you go, okay, I get it. I get it. I absolutely get it. So to the point where I'm pretty sure that all the important people in my life, my wife and everybody really got sick of me talking about it. Right. So.
Doyle (:Yeah, mean, morning, morning, day, night. Yeah, absolutely.
Matt Middendorp (:Yeah, so yeah, so then you fast forward and here I am now helping helping business owners go through those same transitions, make those same decisions for themselves. How do I how do I transition my business to what's next, whether it's transitioning out or strategically moving my business forward and looking at employee ownership, ESOP, employee stock ownership plans specifically as an option.
Doyle (:Okay.
Doyle (:Mm-hmm.
Doyle (:that's, you know, that's perfect because I was just going to ask you, I actually had to look up ESOP before we even started the show. And I'm like, all right, this is where we're going to go. So you just, you defined it a little bit for our audience by employee ownership. For those that do not know and they haven't had time to go look it up, give us a little rundown of ESOP itself.
Matt Middendorp (:So the short short version, very simple. In an ESOP transaction, your company is sold or bought by an ESOP trust. So the shares that you own, whether it's all of the company or part of the company, know, sell the whole thing, are bought by a trust. And then over time, 20, 30, 40 years, those shares go out to the employees.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Okay.
Doyle (:Mm-hmm.
Doyle (:Okay.
Matt Middendorp (:Now there's a couple of cool things about that. Number one, from an employee point of view, they're beneficiary owners, right? So they don't change the name on the door. They don't suddenly have voting rights. But they have a financial stake in the success of the company, probably for the first time. There's a reason ESOP companies grow 2.3 to 2.5 % faster than non ESOP companies, right? Yeah, actually, well, it's kind of cool. So the year after they become an ESOP, they tend to grow 5 or 6 % productivity.
Doyle (:Is it?
Doyle (:Mm-hmm. Absolutely.
Doyle (:wow.
Doyle (:Hmm, interesting. Yeah, absolutely.
Matt Middendorp (:Yeah, it's crazy, right? So it's amazing what happens when you invest your employees in the outcome. But the other cool part about this process of selling your company to the trust is it's the only transition tool where you stay in control of the company.
Doyle (:Really?
Matt Middendorp (:Yes. So think about that. Think about what happens when you sell the private equity or third party. They're probably going to make you stay on, right? They're probably going to make you get into some kind of earn out situation where, Hey, you think we're going to give you this much, but we're actually going to give you this much. And then if you pull it, if you dance our tune on the marionette strings, we'll maybe give you this. The truth of it is, is when you're ESOP owned, the trustee overseeing that trust doesn't care. I'm sorry. Let me, let me restate that. They obviously care about the strength of the company and the wealth of the company.
Doyle (:Mm-hmm. Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Right.
Doyle (:Mm-hmm. Yeah, correct.
Matt Middendorp (:But they're there to represent the employees. The day-to-day operations of the company sticks with the people who are running and making those decisions now, which is pretty crazy, right? So a lot of ESOP companies aren't necessarily about exit. They're about strategy. I have clients where they're in their 40s. They're not going anywhere, right? And they're pulling money out, pulling liquidity from the company to go to other things. So you stay in control. You align the employees so your business is better off.
Doyle (:Mm-hmm.
Doyle (:Interesting. Yeah.
Doyle (:Mm-hmm.
Doyle (:and
Doyle (:Correct.
Matt Middendorp (:And then I'm going to tease right now if that's okay that there are some pretty extraordinary tax benefits, not just to the company, but to the sellers, not just to the company, but the sellers as well. I don't want to say that right now because we haven't had a chance to properly prepare people to pull over. You got to be in a safe place when we drop these bombshells because it really is, it's really something that no other ownership structure can.
Doyle (:Yo, yo.
Doyle (:Okay. All right.
Doyle (:Yeah.
Doyle (:Interesting, so why? At what point in a business do people start thinking about? Even why an EESOP even comes up? Because most business owners I talked to, it's like yeah, I'm ready to transition out and I might transition this to my my kids. I might transition this to somebody else. I might just, you know, put it up on the market. At what point do they come back and go?
Matt Middendorp (:Mm-hmm.
Doyle (:I mean, how do they even know ESOP's an option? Let's start there.
Matt Middendorp (:Well, let's be honest, not enough people do know ESOPs and option, right? That's my job. My job is education. My job is to show people that this is a viable path for their businesses. Again, whether they're looking to transition up or out. Two great examples, I've got a client right now. It's two sellers. They started this manufacturing firm in their fifties. I'm sorry, 50 years ago. They're at a point now where they're really not involved in the company day to day, more on a board strategic advisory path than anything.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm. Okay, yeah.
Doyle (:Mm-hmm.
Matt Middendorp (:They've been entertaining offers from private equity for years from third party buyers for years strategic buyers and they've never said yes not because the money didn't line up they were always getting the money they thought they should get for their company but because they just never felt good about it I mean right you know what happens in those situations when private equity buys a business You've got a three to five year run where the jobs start to disappear all the profits that you used to invest in your community are gone they're going out of town, right so the
Doyle (:with it.
Doyle (:yeah.
Doyle (:Mm-hmm.
Matt Middendorp (:the name on the high school football scoreboard's gone, right? All the stuff in town that you used to sponsor is gone. So, and not to mention, you're putting your employees' lives at risk, their livelihoods. So, that's not the way most ESOP companies wanna work, and this is a great example of people where, right now, they're in a strategic role within the company. The day-to-day is being run by their successors, and they're transitioning to an ESOP where nothing is really gonna change in the way the company's run, but they're ready.
Doyle (:Mm-hmm.
Yep.
Doyle (:Right.
Doyle (:Yep.
Matt Middendorp (:They're ready to cash in. built it. They took the risk. They should get paid. So here's what's really cool about that though, is they're still not sacrificing return. One of the amazing things that I hear all the time and judging by your reaction, you were thinking the same thing is you got to be a little bit of a saint to go ESOP because you're giving it up. It's not the case. It's not the case at all. As we quite often find that an after-tax return, we beat private equity. We beat strategic buyers because
Doyle (:Cool.
Doyle (:Mm-hmm.
Yeah, interesting. Okay.
Doyle (:Hmm.
Matt Middendorp (:Let's just be honest, you shouldn't have to sacrifice this thing you built. You should get paid too.
Doyle (:Yeah, absolutely. Absolutely.
Matt Middendorp (:So another great example of that is the one that I just told a minute ago. It's a construction company. That's in this case, Pool Construction, four sellers. You're going to love this, the way, twin sisters own the company. And then the other two owners were a husband and an ex-husband. So here's the amazing.
Doyle (:Mm-hmm.
Doyle (:OK. Yeah.
Doyle (:Nothing screams family dynamics like all the X's in your business.
Matt Middendorp (:But here's what's awesome about that is they were so easy to work with. They were so perfectly aligned. They're in their forties. They're not going anywhere. They're staying in the company for 10 to 15 years. They had owned it for about 20 and they wanted to pull liquidity from the business so they could go do other things. So they sold 100 % of their company to an ESOP about two years ago now and they are thriving. They're loving it. In fact, a really quick anecdote about them.
Doyle (:Mm-hmm.
Amazing.
Doyle (:Mm-hmm.
Doyle (:Interesting.
Mm-hmm.
Matt Middendorp (:You know all the calls to everybody listening, all those calls that we get from vendors trying to sell us stuff. And they're always calling asking for the owner, right? We get that every day. Now when somebody calls and asks for the owner and a regular employee picks up, they say, you've got it.
Doyle (:Mm-hmm.
Mm-hmm. Yeah.
Doyle (:This is true.
Matt Middendorp (:So if that's not exciting enough just to not have to answer those calls every day, then yeah, you still have some option. Yeah.
Doyle (:Mm-hmm.
Interesting. Interesting. So because we do talk generations, have you noticed a difference? And you just mentioned somebody, you know, they're in their 40s, right? That be in the millennial category. Do you notice like a big difference in from a generational perspective of who's kind of touching into the ESOP or tapping into the ESOP perspective?
Matt Middendorp (:Mm-hmm. Yeah.
Matt Middendorp (:I have done transactions for people in their 30s all the way up into their 80s. So what changes is really goals. that's, when I talk to somebody who's considering ESOP, that's my primary conversation is, what do you want to get out of this? And I don't just mean return. Obviously, that's part of it. But why are you selling? Why are you selling now? What kind of return are you hoping to get? What do you want your company to look like after? Let's talk about your employees, right? Not just your everyday employees, but other key people you want to take care of a little better, differently than others.
Doyle (:Wow.
Doyle (:Okay.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Matt Middendorp (:right? So, just understanding their motivations and the path they want to be on. And if it lines up, we have a conversation about employee ownership and does an ESOP meet those goals and how it does it? It's a very satisfying process. it's really, so we talk about different generations. Like I mentioned, the 40 year olds are pulling liquidity, right? The 80 year old is looking to retire.
Doyle (:Mm-hmm.
Doyle (:Hmm.
Doyle (:Yeah.
Doyle (:Mm-hmm.
Matt Middendorp (:30 year old that I'm talking about, was 32, had a really cool business, retail business. He grew up literally in a house with a dirt floor. Literally a dirt floor and now the man is a multi-millionaire and he's like, you know what, I don't need anything for my life anymore, but I want the people who work for me to never have to be what I grew up in. And he wanted to give them wealth that they were never gonna have to regret working for him. He wanted to be the place that people wanted to be so they could change their lives.
Doyle (:Yeah.
Doyle (:Man.
Doyle (:Wow.
Doyle (:Interesting. as an employee has some period of time, at what point are they truly considered part owner of the business?
Matt Middendorp (:So
Matt Middendorp (:So typically, sorry about that, just kind of paused for a second there. Typically in a transaction, we go through and we'll create, let's just say a million shares, right? They go over, they go on over a period of time, right? So people gradually build balances. In the ESOP transaction, just like a 401k, it's actually established under the same laws of 401k. The primary difference in an ESOP, they don't have to put their own money in.
Doyle (:Yeah, you're good.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Okay.
Doyle (:Okay.
Matt Middendorp (:Right. So they just put in their time and their talent and their expertise to drive the success of the company. But there is still a vesting period. Right. So they start out with a little bit of shares at a smaller price. And as the company pays off debt to the sellers for the transaction, as the company grows and the company becomes more successful, that share price increases and so do their balances. And I think a great example of the longevity impacts of an ESOP. Are you familiar with the grocery chain Publix?
Doyle (:Mm-hmm.
Doyle (:Yeah. What? I did not know that.
Matt Middendorp (:They're an ESOP company in the southeastern part of the United States, And you hear stories of publics all the time from the cashiers up front who are checking you out and asking if you want paper or plastic every day. They've been there for 20, 25, 30 years and they're multi-millionaires.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Wow.
Matt Middendorp (:They may have never made more than 20 bucks an hour, but because they work for an ESOP company and they've been there for so long and they've built up these balances, they're going to retire. Let's just be honest, we've got a retirement gap in this country, right? We've got a lot of people who are not going to be able to maintain a standard of living. This is a great solution to take those people, the people who help you get and build your success as a business owner, real wealth that can change their lives.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Yeah, wow. That's all right. I'm in. I'm in now. Now you got me in. you kind of. No, no, no, no, no, no, no, because you haven't told me about the tax benefits. So I mean, we've got to get into that. We gave people a little heads up. Hey, you need to start pulling over. So as as people are really digging in and looking at their different different options, how did the tax benefits stack up?
Matt Middendorp (:OK, cool. Very good. So it's the end of the interview. Is there more you want to ask? We got it? OK.
Matt Middendorp (:Yep. Good.
Doyle (:to really look at, does it make sense to be an ESOP?
Matt Middendorp (:Sure, so let's attack this from two different angles, right? You because we've talked about the impact on your employees of being an ESOP and how it really does change lives, how it aligns the growth of the company with the employees, right? We've talked about this from a seller's point of view as far as the tactics of it, meaning you don't have to sacrifice return, you stay in control of the day-to-day decision-making of your company, which is the only option to do that, and you maintain your legacy both for your employees and the business, but your community as well.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Okay.
Matt Middendorp (:So the impact on the business itself though is something we haven't really talked about. Right? And the really big impact beyond the growth that comes from aligning the employees comes from taxes. So let me go back to the scenario, the pool company, the construction company I was talking about. They went 100 % in play owned. They were an S-Corp. Because they're 100 % in play owned and in one of the 46 states that acknowledges ESOPs,
Doyle (:Mm-hmm. Yep.
Mm-hmm.
Matt Middendorp (:their company no longer pay state or federal tax.
Doyle (:What?
Matt Middendorp (:Yes, so those K1s that would go to the shareholders before now go to the ESOP and the trust doesn't have to pay.
Doyle (:You
Wow.
Matt Middendorp (:So can you imagine for your business, like in their case, they weren't going anywhere, but they were changing the trajectory of their business, leaving their business better off, a strategic move forward, if you will. They were saving a few million dollars a year.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Yeah. Yeah. Yes. I mean, that's a phenomenal tax break.
Matt Middendorp (:Yeah. Can you imagine?
Matt Middendorp (:Now it's proportional, meaning if you sell less than 100 % of your company, if you sell 30%, then you get 30 % of the benefit. But yeah, right? Now there are also benefits to a C Corp and some deductions, but the most tax-efficient model is S Corp. So a lot of times we'll do a C Corp transaction and then transition them to S if they want to elect some other options. from a tax perspective of a seller, there are strategies and paths.
Doyle (:Mm-hmm.
Wow.
Doyle (:Mm-hmm. Yep.
Doyle (:Mm-hmm.
Matt Middendorp (:which are done every day where they can defer their tax bill on it too. So they're not taking 30, 40 % off the top like they do in a typical transaction through PE or through a strategic partner. Right? They're able to defer that. And most of people we're working with, they've had these companies, they've built wealth for themselves. They don't need another cabin on the lake and a third Corvette, right? So they decide to defer that.
Doyle (:Okay.
Doyle (:Wow.
Doyle (:Right?
Matt Middendorp (:tax bill. And even if they didn't, they get special tax treatment anyway selling to an ESO. So there's a reason we win in a lot of these scenarios in an after-tax return compared to the other options. It's really interesting. It's a fantastic way to go for business. It takes the time to really look at it.
Doyle (:Mm-hmm. Interesting.
Doyle (:Mm-hmm. Interesting.
Doyle (:Yeah, so one of the questions I do have though is what makes a business like attractive from an ESA perspective?
Matt Middendorp (:Who's a fit? Sure. That's a great question. Typically 15 to 25 employees is a minimum, right? You want to make sure that you have sufficient payroll and that's 15 to 25 to cover the contributions you're making to the ESOP. You have to be a US based company. So I do get calls from time to time for companies that are incorporated in the Virgin Islands and stuff like that, which would be US based. So they work, but not if they're incorporated in Ireland, right?
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Okay.
Doyle (:Okay.
Matt Middendorp (:so we get that, the other side of it is, is you have to be profitable. You have to be a company that other companies would want to buy. that's important. That's really important. This isn't an escape hatch. This isn't an easy out for people who have no other options. Like, I'll just sell to my employees. That's not the case at all. you do need to be a sellable company. You mean to make sure management's aligned.
Doyle (:Yeah.
Doyle (:Right?
Doyle (:Mmm.
Doyle (:You're right. Okay, good.
Doyle (:Mm-hmm.
Matt Middendorp (:And then the third part of that or the fourth part of that is you need to be committed because there is a pretty steep education curve with your employees. Right now, I'm not saying you have to go full open book. You shouldn't, right? There needs to be some things that you need to keep in. But the truth of it is, is you want your employees to be invested in the success of the company. You want that alignment of the company's financial success and their financial success to really pay off. So they need to know how they impact the company's bottom line.
Doyle (:Mm-hmm.
Doyle (:There's some things people don't need to know.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Matt Middendorp (:They need to know how when they pull X lever, what happens on the other end. So that's a process that doesn't just happen once you're going to find ESOP actually becomes a pretty continuous part of your conversation, a part of your culture. And you have to be ready and committed to.
Doyle (:right.
Doyle (:Mm-hmm.
Doyle (:Yeah, and what kind of like what's the lead time to get people from thinking about it to OK, we're we're all we're in and now we're kind of moving like what's that timeline look like?
Matt Middendorp (:Sure. Yeah, so if I'm talking to a business owner or seller who's thinking about what's next, you're right. Step one is exactly what I call the I think I want to phase. And that is education. That is two, three, four, five conversations going through the nuances of their business, understanding their goals, educating them about employee ownership and ESOP, how it works, what it is, the path to become. That phase ends in something called a feasibility study. So a feasibility study is all about decision-making.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Matt Middendorp (:It's a tool to give you the data you need so you can say yes, no, or yes, but maybe later for an ESOP. So, so going through that process, they get to see the impact on their bottom line. What's their return? They get to see what that impact on the company looks like. And they get to see the balances that their employees are going to build the wealth they're going to help them create. So they get that and they get a chance to say yes or no. And typically that process to go through is about six to eight weeks.
Doyle (:Okay.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Okay. Alright, so... No!
Matt Middendorp (:So not too bad, right? It typically, yeah, it's pretty straightforward. If they decide they do want to move forward, we'll add another four to six months to do the actual transaction where we put the team in place. And part of that team is hiring the trustee that you're going to negotiate with. So by the way, tell me another transaction structure where you get to hire the person you're negotiating against for the company. It's pretty cool.
Doyle (:Mm-hmm.
Okay.
Doyle (:Mm-hmm.
Doyle (:Right.
Doyle (:Right.
Matt Middendorp (:We always like to say that ESOP transactions, if you've ever been through due diligence for a strategic buyer or for private equity, you know what's happening is they're going in there and they're trying to find any reason to knock it down. ESOP transactions are not that, they are not combative. They are collaborative. When we go into due diligence, they get the data that we put together, minus the value of the company, of course, right? But they get the projections and they get the data.
Doyle (:Correct.
Doyle (:Hmm.
Mm-hmm.
Matt Middendorp (:and they're using this and they're coming in and we're telling them a story, we're creating a narrative so they understand the company, they understand the numbers and they're asking questions to confirm, not to tear down. It's completely different process. Yeah, completely different. And honestly, it's a lot of fun. I'm traveling to a client in two weeks to go to a due diligence meeting and I have no stress over it at all.
Doyle (:Mm-hmm.
Okay. Totally different.
Doyle (:That's I mean, I mean, you shouldn't have any stress over it.
Matt Middendorp (:Well, if it doesn't work out, I should have a lot of stress over it, because then it's my fault. Yeah.
Doyle (:Well, I mean, yeah, yeah. Well, well, maybe. Very seriously. So I mean, okay, fine, we can allow a little bit of stress over it.
Matt Middendorp (:Come on, I take my job very seriously.
So yeah, right. We'll just be prepared. We'll make sure the client's prepared. We know the people we're working with. We have relationships with everybody and we have the right conversation and get them the information they need to make the right decisions on the negotiations that are going to take place. So yeah, it's fun. It really is fun. I look forward to it.
Doyle (:Mm-hmm.
Doyle (:Nice. Nice.
Yeah, I mean, I'm more like from going from not knowing to like, hey, wait a minute. Like, there's obviously some positive. There's obviously a lot of positive upswing. What would you say is kind of like for owners? What is like a big miss that you see for that from them?
Matt Middendorp (:Mm-hmm.
Matt Middendorp (:Yeah. So let's talk about who it's not for. think that's a really great, a great conversation to have. number one is the biggest thing with the ESOP. mean, so let's just, let's cover the, let's cover the least important first. It costs money to do. Now I want to be really clear to the people listening to this. You're going to talk to companies who are going to want to charge you a success fee. There is zero reason to pay a success fee in an ESOP transaction because you are not
Doyle (:Mm-hmm.
Doyle (:yeah.
Doyle (:Mm-hmm.
Doyle (:Mm.
Matt Middendorp (:having to go out and find a buyer, you're going to hire the buyer. So why are you getting paid a success fee in a friendly negotiation where it's all laid out in front of you? It should be flat fee. As a matter of fact, if you're paying more than 1 % of the total cost of the bit, like the sell price of the business to get an ESOP done, you're paying too much. So now I want to tell you that because what happens in a typical strategic buyer or M &A transaction, what, four or five, 6%, right? And that's
Doyle (:Right.
Doyle (:Wow.
Doyle (:Mm-hmm. At least.
Matt Middendorp (:That's on top of the fact that you're paying more in taxes and you're losing the tax benefits. So while there is a cost to create an ESOP and that is a negative of it, it's in reaction if you're saving a whole bunch of money in your own taxes, that's okay. I'll pay $250,000 to create an ESOP if it means that I don't have to pay taxes on my business anymore, right? There's also an ongoing cost to have an ESOP depending on the size of your company.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:Right. Thank you.
Matt Middendorp (:Most companies $40,000 to $60,000 a year. But again, if you're saving hundreds of thousands to millions of dollars, who cares? You have to have evaluation done every year. You have your trustee creating the share price from the evaluation. And you have a third party administrator just like your 401k. So let's get to the real challenge that some people have with the ESOP then. And that is in almost every transaction, there's a component of being paid over time. So now again, in a lot of M &A transactions,
Doyle (:Mm-hmm.
Right.
Doyle (:Mm-hmm.
Doyle (:Yeah.
Doyle (:Mm-hmm.
Matt Middendorp (:They're not just giving you a check and letting you do this anymore. They're requiring you to stay in or you'll get paid in chunks over time. But in an ESOP transaction, that's almost always the case. Now, bank financing is very big part of this. Getting a chunk of money upfront, right? Cash at close is a big deal. But there's, again, almost always a component of seller financing. With seller financing, though, you are getting paid interest, usually a percent or a percent and a half above the going.
Doyle (:Mm-hmm. Yep.
Doyle (:Mm-hmm.
Matt Middendorp (:So for again, a lot of sellers, they're like, forget the bank, I wanna make interest and I wanna get that paid off in five, seven, years. So it's not a huge commitment, but it is something that depending on your goals, we wanna make sure we're lining you up with the right option. And if you wanna just walk away from your business, you can in any stop, but man, it's not normal. It's not the way normally it works.
Doyle (:man. Right? This is good stuff. Yeah, this is really good stuff. mean, it's Yeah. So
Matt Middendorp (:Thanks, I appreciate that.
Matt Middendorp (:Well, it's not a bad Friday afternoon if I'm blowing your mind,
Doyle (:Right? Yeah, I know. Way to end the Friday. Way to end the week. Mind blown. So we're at that point, the rapid fire section of our show. So got some questions here for you. So whatever comes to mind. What's the dumbest thing you've ever heard in a meeting?
Matt Middendorp (:Go for it. Bring it.
Matt Middendorp (:I'm trying to think if I have with my bank background if there's anything anybody's ever said that I can actually tell you that would incriminate me. I can tell you that I have had people in meetings where they're looking to borrow in some cases millions of dollars for their business. Come out and flat tell me that yeah they're not actually going to use this money for their business they have other goals but they're going to that's what they told me.
Doyle (:Mm-hmm.
Doyle (:carry it up underneath it? yeah.
Matt Middendorp (:And then they slip and say, by the way, this portion's never gonna go to building my lake house. Well, that's not what this is for. So I guess people flat out admitting loan fraud to me before a deal is closed, God, is probably the dumbest thing I've ever heard in a meeting.
Doyle (:That's not... Yeah.
Doyle (:Mm-hmm.
Doyle (:Hmm. Yes. So what is your your what's worse group text or meetings that should have been emails?
Matt Middendorp (:I'm gonna say meetings that should have been emails only because man, there's a lot of them. One of the beautiful things that I do know is when people send me emails with long lists of questions, I'm like, here's my calendar, like just schedule it, because I'm not gonna spend an hour typing this out. So definitely meetings that should have been emails. I have three teenage boys, so group texts are probably a close second, but yeah.
Doyle (:Mm hmm.
Doyle (:Mm-hmm.
Right.
Doyle (:Yeah. Yep. Beer bourbon or I'm more of a kombucha person.
Matt Middendorp (:Does anybody ever actually say kombucha person?
Doyle (:You know, we did have one person say they they don't drink and they do they have had kombucha
Matt Middendorp (:That's true. Sorry, I'm in Wisconsin, so it's just assumed here. No, you know, if I was sit down and I was gonna pull something out, I would definitely pull out a good bourbon, for sure. Cigar, maybe, even, what the heck, right?
Doyle (:Nice, nice. All right, yeah. Favorite candy.
Matt Middendorp (:I'm gonna throw this out there. I'm gonna say peanut butter cups
Doyle (:yeah, that's a good one. Best pizza topping.
Matt Middendorp (:This is probably going to alienate happy people on there, but I love a good Hawaiian pizza. I know, I know. I'm sorry. I actually, I just broke out a little bit of a sweat admitting that, but really putting myself out there today. You really made me very comfortable. I appreciate that safe space. It's a safe space. Yeah.
Doyle (:You
Yeah, it's safe space. It's all good. It's all good. Favorite music.
Matt Middendorp (:Favorite music? Man, if I was going to throw something on right now, I would probably throw on some Black Crowes.
Doyle (:yeah. Heck yeah. We're in for that. Living or dead, who would you want to have a conversation with?
Matt Middendorp (:Why not,
Matt Middendorp (:Man, I would love to sit down with Thomas Jefferson, which sounds really kind of crazy, but it's one of those things where my degrees are in political science and economics. And I was just in Philadelphia. I just toured Independence Hall. I saw the building where he wrote the Declaration of Independence. It would be really cool just to sit down and say, okay, you brought all these different ideas from philosophy together. Tell me like your process, like tell me how you did that. And how did you take that vision forward into your own leadership?
Doyle (:yeah?
Doyle (:Mm-hmm.
Doyle (:Nice.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm. dude, that's so good. So last one, Ginger or Marianne?
Matt Middendorp (:Thanks.
Matt Middendorp (:Again, Mary Ann, come on.
Doyle (:Love it. Well, thanks for the rapid fire session. We definitely appreciate that. We definitely appreciate it, man. So how can anybody get a hold of you to talk more about ESOP?
Matt Middendorp (:That's awesome.
Matt Middendorp (:Sure, I'm gonna give them two methods if that's okay. The first one I wanna start with is actually a website. is esopready.com, E-S-O-P ready.com. On esopready.com, they can actually go through and learn about a lot of the things we talked about today, read it for themselves, they can actually take an assessment. So they can click on that and they can enter some of their own company information at a high level and it'll say, yeah, should really, how likely is this to work for you? Let's take a look. And then from that, they can actually jump straight into my calendar and schedule a talk.
Doyle (:Mm-hmm.
Doyle (:Mm-hmm.
Doyle (:OK, excellent.
Matt Middendorp (:So which is really cool. So you can learn, you can assess, and you can schedule time with me. My job is education. That's it, is to help people figure out, this right for them? If you don't like the interwebs, feel free to just give me a call. I'm just going to give you my cell phone number. You can call me at 715-897-0879. Just call me direct, and let's have a conversation. It's, again, my job to help people understand this and see if it's right.
Doyle (:Mm-hmm.
Mm-hmm.
Doyle (:Thank you so much, man. This has been really great, very insightful and for our audience. I know it's going to be impactful for those that are that are looking for what that next step is in their business. That next stage. So thank you very much for coming on today.
Matt Middendorp (:Thank you.
Matt Middendorp (:Well, it could be a lot. So yeah, I don't mind if people want to talk. We can figure out if it works. So this has been great. Thank you so much for having me on. And thank you, Brad, from the MFAM parking lot.
Doyle (:Yeah, all right. Yeah. Yeah. Yeah, Brad. Screw you, buddy. No. No. So all right, Matt. Thank you so much for being a guest on our show today. We definitely appreciate it. Yeah.
Matt Middendorp (:We're going to edit that part out, No, OK.
Matt Middendorp (:Thanks for having me.