Six Private Equity Offers a Week, and He Sold to His Staff Instead
with Eric Rieger, founder of WEBIT Services. Managed service provider (MSP) in Naperville, Illinois, now employee-owned
Eric Rieger spent six years researching how to sell WEBIT Services to the people who worked in it, then about twenty minutes signing the paperwork. Private equity had been calling for years: handwritten letters to his home address, his mobile ringing, six or seven offers in a week once revenue crossed $5 million. He turned all of it down, because the people who built the company had become his friends and he could not picture handing them a new owner on his way out.
We also get into the numbers almost nobody in the channel puts on the record. About $70,000 to set the employee stock ownership plan (ESOP) up, five or six thousand a year to administer, plus a $10,000 to $15,000 annual valuation. The four prerequisites before anyone should attempt it. A seller note instead of a bank, so he stayed in control of the payments. And how an employee actually turns those shares into money, with a payout schedule designed so a wave of retirements cannot drain the business.
What we cover
- Handwritten letters at home and six offers a week once revenue crossed $5 million
- What an ESOP actually is: a trust, shares issued every year, a valuation every year
- What it costs to set up, and what it costs to run
- The four prerequisites: $5 million in revenue, twenty employees, taxes paid, no debt
- Why he started at 30%, and the seller note that made him the bank
- Selling the other 70% by merging into an employee-owned holding company
- How an employee gets liquidity, and the payout design that protects the cash
- Private equity lobbying Congress to make employee ownership harder
What's inside
- 00:00 Cold open and intro
- 01:09 Titanic Enterprises, and a T-shirt business losing money on every order
- 02:29 Talking his way into a developer job with no code
- 03:01 Quitting, then hired back as the first MSP contract
- 03:41 Thirty years of fits and starts, and a materials management degree
- 04:45 Robin Robbins, Gary Pica and TruMethods
- 05:06 Hiring leaders and letting operations go early
- 05:59 The four pillars of a business
- 06:25 Small Giants, open book management, and the 2016 left turn
- 07:52 Referrals and nonprofits after outside marketing failed
- 09:10 The warm 250, and leading with information over sales
- 09:52 When the exit question first came up
- 11:18 2016, the year that changed everything
- 12:04 Handwritten letters at home and six offers a week
- 12:53 Getting the word out that the company was not for sale
- 13:25 What an ESOP is: a trust, the Employee Retirement Income Security Act (ERISA), and shares every year
- 13:56 The drawbacks, starting with the cost
- 14:24 Twenty minutes to sign after six years of homework
- 15:17 The federal tax position at 100% ESOP
- 16:00 The four prerequisites before you attempt this
- 16:54 The seller note that made him the bank
- 17:11 Employee ownership trusts (EOTs), perpetual purpose trusts (PPTs) and worker co-ops
- 18:14 Is $5 million really the threshold, and what it costs to set up
- 19:20 How the debt works: the business buys itself
- 20:10 An independent valuation that came back higher than expected
- 21:44 Selling the other 70% through a merger
- 23:21 Vesting cut to three years, plus 4% 401(k) matching
- 24:12 How an employee actually gets liquidity
- 25:54 Designing the payout so a mass retirement cannot drain cash
- 28:31 Life after the merger
- 29:50 Shared services and budgets
- 31:41 The fractional chief financial officer (CFO) who talked them into it
- 33:15 People over profits, and not being an anti-capitalist
- 33:53 The book, and the income inequality gap behind it
- 35:22 Private equity lobbying Congress to make ESOPs harder
- 35:52 The grid: ESOP, EOT, PPT, co-op, evergreen
- 37:21 The friend who sold and lost every relationship in the building
- 38:23 Where to find Eric
The guest
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