David Colter joined GAC Chemical in Ohio in 1994, months after the chemical manufacturer bought a plant in Searsport that mainly supplied chemicals to the Maine paper industry. About eight years later, the son of company founder James Poure purchased most of the company, but the elder Poure retained ownership of the Maine plant. Colter said he faced a choice: Remain a numbers-cruncher for the Ohio-based company or move to Maine with the possibility of one day becoming its president and chief executive officer.
He chose Maine, where the company began to diversify so that the paper industry now represents about 45 percent of the company’s business, down from about 80 percent. The company also makes chemicals for water and wastewater treatment, the food and pharmaceutical sectors and energy.
DAVID COLTER
WHAT WAS YOUR FIRST JOB? I was a paper boy for the Toledo Blade.
WHAT ABOUT YOUR BUSINESS KEEPS YOU UP AT NIGHT? They’re not bad things, they’re good things – we have a lot of opportunity at GAC right now, and it’s keeping all those balls in the air so we’re meeting the expectations of our customers.
HOW DO YOU DEAL WITH THAT? I send a lot of emails to myself.
WHAT’S THE BEST BUSINESS ADVICE YOU CAN OFFER TO OTHERS? Be willing to admit you don’t know everything and hire good people to help you with those areas where you may be weak.
This year, James Poure decided he was ready to retire and talked to Colter about buying his shares. Bankers suggested looking at an employee stock ownership plan, or ESOP, which provides tax breaks that allow the purchase of the company for less cash than would normally be the case. The arrangement benefits the seller – Colter said Poure will pay capital gains tax of about 22 percent on the sale of his shares to the ESOP trust, rather than the ordinary tax rate that would be at about twice that for capital gains – and the employees, whose jobs could have been imperiled if the plant were sold to an out-of-state competitor. The transaction to an ESOP closed June 23. Colter declined to provide financial data or say how many employees GAC Chemical has.
Q: How did the ESOP come about?
A: It was when Jim made the decision that he was ready to officially retire. He and I had been having conversations over the last few years about whether I was interested in buying the company. I had expressed an interest to try to acquire the facility and as we were looking at what he was looking for from a purchase price and options to finance the acquisition, the ESOP concept was brought to us by a bank. I knew very little about the mechanics and the setup of the ESOP – there were a lot of moving parts. Could all of that work with what we were trying to do? With some time and effort, looking at the alternatives of conventional financing and the ESOP structure, when you look at the projections and the tax advantages, the ESOP worked on several levels.
Q: How did it differ from a conventional purchase?
A: In some transition models, you just buy the assets, but there’s a double tax – a tax on the gain on those assets and then a distribution to a shareholder or shareholders, and then they’re taxed again. This allows us to buy the shares and he’s taxed at a capital gains rate versus ordinary income. The capital gains rate is 22 percent and it’s almost double for the ordinary tax rate.
Q: Do the employees have to make an investment?
A: The employees put in nothing. The mechanics are that the ESOP trust holds the stock for the benefit of employees, and their retirement benefit is to receive the appreciation in value as cash when they retire. They never really get shares because the shares stay in the trust, but they get the value attributable to their account.
Q: Did you have a lot of questions from employees as this moved along?
A: This whole transaction structure wasn’t very out in the open. We were working on negotiations and working with the banks. I proposed it to Jim and the board voted to accept and then we rolled it out to employees. They were thrilled with this new retirement benefit and we were fortunate enough to have one of our sales employees who had been with a company that was an ESOP and he said, “This is a good thing, guys.”
Q: How complex was it?
A: I think any transaction can take twists and turns. The wild card for us was just navigating through the Small Business Administration requirements, but it wouldn’t have happened without the support of the SBA. They provided a (loan) guarantee as part of the bank’s financing program and they were supporting a direct loan to the ESOP trust. If you think about all the SBA loans that are done in the course of a year, the average number that involve loans to an ESOP is only about four. For that reason, it was helpful to have the support of the SBA, to help us get through that process.
Q: So when were the employees brought into it?
A: We were still waiting for the dust to settle and did a full roll out with the ESOP July 27. We had a meeting with the employees about what we did, how we did it and what the benefits were, and then we had a full roll out and gave them an opportunity to ask questions. The key is ongoing education and communication. I think that they asked very good questions, very well-thought-out questions. It takes some time to sink in and as we continue on this path, more questions will come up. Our goal is to have a continuing education program to help bridge that gap. I’ve reached out to other ESOP companies in the state, like Moody’s Collision Centers and Cianbro, and it’s nice to have those resources, with companies that are already doing this.
Q: Is there a downside to this ownership structure?
A: I’m not seeing a drawback at the moment, but what I am seeing and hearing is genuine appreciation of putting this plan together.
Q: Are you a member of the ESOP?
A: The governance and the hierarchy of the company don’t change. I’m still president and CEO of the company. I’m not a participant in the trust.
Q: What are the benefits of this ownership structure, beyond the retirement benefits possible for employees?
A: One is employee retention, and two is attracting talent. Those are the two primary benefits going forward. I sit around the table and look at our group and there are a number of people who have been 40-plus years. They’re happy to see (the ESOP) because we set our program up on the shortest vesting timetable we could, which is three years. (The company still has a 401(k) for employees.)
Q: Are employees more engaged and focused on the bottom line because of their financial stake in the company?
A: I believe that’s the case. Time will tell if that’s true, but based on what I’ve heard from other companies that are set up that way, that’s very much the case.
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