Transitioning from Founder-led to Employee-owned

M&S Engineering, a $50 million revenue, Texas-based power transmission & distribution and site / civil engineering firm has been a Key Client of AEC Advisors since 2018.  They are led by CEO Brian Meuth and CFO Jason Jones. 

In 2018, M&S requested AEC Advisors to provide advice on the company’s internal stock valuation and ownership transition options.

At the time, the two co-founders had a combined ownership of ~80% of M&S.  Such concentrated ownership in an employee-owned firm usually presents a significant challenge and dilemma.  The retiring shareholder has a goal of maximizing the valuation, but needs to balance this with the remaining shareholders’ ability to afford a buyout without overloading on debt and putting the firm at risk.  Furthermore, rising stars in the firm were starting vocalize desires to become owners in the business. 

However, without a formal ownership transition plan, M&S had no guideline on how to value and distribute the shares if one of these major shareholders retired, and how to offer or allocate shares to other employees. 

In 2019, one of the co-founders was seeking to retire, which presented an opportunity to develop a formal internal ownership transition program that would balance the interests of buyers and sellers, set a procedure for valuing the firm’s stock, and focus on sustaining an independent firm owned by the employees, not just the founders.   

Working with Mr. Meuth and Mr. Jones, AEC Advisors developed a financial model to evaluate the feasibility of an internal ownership transition under various approaches to valuation and financing mechanisms, and then stress-tested scenarios based on different levels of performance.  Following the internal ownership transition model that we developed, we then worked with the company’s legal and tax advisors to institute a new corporate structure that would optimize the tax efficiency of transitioning shares between buyers and sellers.

After the initial transactions with one of the founders, M&S formally established the new ownership transition program, which continues to thrive today.  Rising stars in M&S are excited to buy-in, be part of the ownership group, and make an impact driving performance. As a result, financial performance is at an all-time high.