There are many paths to becoming an employee-owned company, but one of the most common is also one of the least talked about: companies becoming employee-owned by being acquired by a company that already is employee-owned.
“The more I learned, the more I realized the complexity of setting up an ESOP,” says Bob Navarre, the former owner of Valley Honda in Naperville, Illinois. “I wasn’t deterred, but it was clearly going to be a lot of work.” Navarre’s eventual solution, selling Valley Honda to ESOP- owned Roush Holdings in November 2020, accomplished many of Navarre’s goals for his company.
Navarre had been thinking about employee ownership for his business for years. Valley Honda has long had what Navarre calls a “phenomenal” culture. He says that when an employee told him, “I love working for you,” he would reply, “You don’t work for me. No one comes to work for me. We have a common vision, and we’re all working for that vision; we’re all working for our families.”
He knew that a sale to a public company or typical buyer was not the right fit for him or for Valley Honda. He believes that maintaining a strong culture “is hard to do in the context of a public company or conglomerate,” so he concluded that “from the beginning, ownership by a public company simply wasn’t the game plan I wanted.”
He says the question he kept coming back to was, “Someone will own this business after me. How do we want to set it up so it’s good for people who work here?”
The idea of becoming employee-owned first became concrete for him at his former business, a Toyota dealership, when he noticed how many of their customers were employee-owners at a very successful nearby company. “We had people coming in to buy their cars from us; I noticed all those young people who were really successful.”
Another spark for Navarre was a company he already knew and loved: Bob’s Red Mill. After that company became employee-owned, Navarre watched the videos on their website about what it means to be employee-owned, and he kept being impressed with the company’s accomplishments since its transition.
Navarre worked hard to learn all he could about ESOPs, and part of his learning process was to reach out to other automotive dealerships with ESOPs to learn from their experience. He contacted Jeff Brindley, the CEO of a respected ESOP-owned company, Roush Holdings of Columbus, Ohio. Brindley came to Naperville along with the CFO and COO of Roush. That visit was the turning point in Navarre’s thinking about who should own Valley Honda.
A major factor that influenced Navarre’s thinking was the care the Roush leadership took with the executives of Valley Honda. “As an entrepreneur, day-to-day leadership is one key thing I was thinking about. We had a fantastic leadership team, and I wanted to know who led our leaders,” he said. The Roush leadership team spent several hours with the Valley Honda leaders, talking about operational nuts and bolts and about management philosophy. Thinking back to that day, Navarre says, “Talking with the Roush leadership was the last piece of the puzzle for me.”
In this case, Roush also had another advantage—as an automotive dealer itself, Roush would have an easier time with the vital issue of securing the agreement of the manufacturer, without which an ownership transition would be impossible.
After the sale was completed, Navarre was invited to join the board of Roush. When he took that position, he ended his operations role at Valley Honda.
Looking back on the sale, Navarre says, “I feel even better about the sale today than I did on day one. It was the perfect fit for our company.” He believes that the combined company—the 240 employees at Valley Honda plus the 300 at Roush Holdings—are bigger and better than the sum of the parts. “We took the culture we had and took it to a whole new level.”
Companies considering employee ownership should always consider a menu of options, and those options should include setting up their own plans as well as a sale to an employee-owned company.
A sale is not the right fit for every company. It is a much larger change than simply adopting an ESOP, and integrating with another company involves profound changes in company operation and, potentially, staffing. Some owners may also put a value on the business’s remaining an independent entity.
But in the right situations, a sale can be the right move. It can involve lower transaction costs than an ESOP conversion, simplify the process, and speed up the move to employee ownership. Selling stock to a company, even one owned by an ESOP, involves less strict fiduciary review and a different process of negotiating the sale price. Companies that need to replace the executive leadership when their owner leaves may find that a sale to an ESOP company creates not just a great new ownership structure, but simultaneously strengthens the leadership team. As Navarre says, “Both companies were stronger from the moment we joined together.”