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166: Darren Gleeman - Revisited

We are revisiting our episode with Darren Gleeman of MBO Ventures, who shared his exuberant views that ESOPs are not boring, and are, in fact, pretty sexy.

This episode originally aired on May 4, 2021 as Episode 149: Darren Gleeman - ESOPs are NOT Boring.


Episode 166 Transcript

Bret Keisling: We are just weeks away from the launch of The EO Podcast Network, the EsOp Podcast and the ESOP Mini-cast hosted by me will be joined by the Why Worker Co-ops podcast hosted by Rodney North and the Owner to Owner podcast hosted by Jesse Tyler.

Bret Keisling: While we work to bring you new podcasts and new podcast episodes, I wanted to share one of my favorite episodes of the last year. I hope you enjoy.


Bitsy McCann: Welcome to The EO Podcast, where we amplify and celebrate all forms of employee ownership.

Bret Keisling: Hello, my friends. Thank you for listening. My name is Bret Keisling and as it says on my business cards, I'm a passionate advocate for employee ownership. We are just going to jump right into it. There's somebody who's been blowing up on my social media with the coolest content -- very exciting, very exuberant -- and I just wanted to bring him on the podcast and chat about his premise.

Bret Keisling: Darren Gleeman of MBO Ventures. Welcome to the podcast.

Darren Gleeman: Thank you very much. Nice to meet you.

Bret Keisling: So before we get into it, just tell us a real briefly who you are, who you're with and what you're doing.

Darren Gleeman: Briefly, I'm with a company called MBO Ventures and we are a company that will invest in what's called the seller note portion of an ESOP and we also work with various investment banking firms to structure ESOPs. We've structured over 300 ESOPs over the past 20 years, many billions of dollars enterprise value, and we structured many billions of dollars of ESOP loans.

Bret Keisling: And Darren, this is why you're on the podcast. You are involved in seller notes. You are involved in financing of ESOP transactions. And what I've been seeing on social media is something I haven't said before in all my exuberance, you believe that ESOPs are not boring! Am I right?

Darren Gleeman: [Laughter.] That is correct, Bret. ESOPs are definitely not boring! Bottom line is an ESOP is a way, right, for a business owner to sell their company, to their employees. You know, you have three ways to sell your company. You can sell your company to a strategic, you could sell your company to a private equity, or what people don't realize is you can sell your firm to the employees.

Darren Gleeman: But when you sell your firm to the employees, there are significant, tremendous tax incentives to the owner, right? And so when you put those tax incentives in place, there's a lot of money to the owner that they're going to receive. And once they learn about it, they're going to realize they're making more money with an ESOP than if they sold to a private equity. And that trickles down, literally, to the employees who become owners of this company.

Darren Gleeman: And so they are very, very not boring because when it comes to someone -- when it comes to, even, their children, right -- what people want to do the company, usually, they want to take that company from this generation to their children's generation. Well, the process they do right now, it's kind of tax inefficient -- but they can use the ESOP! And it'd be actually really amazing for the kids and for the family, a lot more money for them and a lot more money for the employees. So it is very much not boring.

Bret Keisling: All right, first of all, I love the exuberance and we are going to talk -- that is the thrust of this podcast, ESOPs are not boring. As you know, Darren, our guests, since the fall have been sharing their EO A-ha Moments, what put them the path to advocacy. You're a serious business person. If people check out your profile on LinkedIn, you have done a lot of really cool things you choose to be in this space. Do you have a moment or something that has shaped your path?

Darren Gleeman: Yes, so prior to this, I was in the world that was called high-frequency trading [HFT] and that is when computers trade, actually, for the humans. So it's actually trading stocks based on patterns that you see in the marketplace, right? And so we started that back in 2000, did really well. That company was trading over one half percent of the entire US market in stocks every single day, which is a huge amount of stress and there's a huge amount of stock. So I exited them and at that point, what am I going to do? I'm going to go into private equity.

Darren Gleeman: But what I saw is with private equity, that in order to do a really good job with private equity, because I am a businessman, what you want to do is you want to take companies in the same industry -- companies A, B, C, D, and E -- put them together to get economies of scale. And so when I put them together, what I need to do is I need to fire the accounting departments. I need to let go certain manufacturing facilities. Get rid of the marketing staff. You know, I can basically reduce my company staff by 25% because my overhead.

Darren Gleeman: I didn't want to be that guy. And I didn't have to be that guy. So I'm like, what can I do? And ESOPs, I knew about, I started doing a lot of research. It's like, wow, this really is a phenomenal way to invest and really do fantastic for people! Because a person, when they do an ESOP, it's a human being. They literally become an owner. And when you become an owner, it's just such a more satisfactory for them and they can start building up equity! I mean, where else can, as someone who doesn't have that much money, build up equity? You can't do it.

Darren Gleeman: And so I started researching that and it was like, it was a no brainer to get into that. Plus no one knows about ESOPs! And I saw the way it's been marketed. And the way it's been marketed has been to me, not a great job because...

Bret Keisling: Boring!

Darren Gleeman: ...insanely boring, you know, insanely boring. If I look up anything about ESOPs and you go on the internet and you Google it, right away, you know, it gets into the technical matters of that it's a pension defined benefit contribution, 1042s, and after about 15 seconds, you fall asleep. And I started going to seminars. Same thing with the seminars! You go to a seminar, and it's also technical.

Darren Gleeman: I mean, for some reason, when it comes to an ESOP, everyone wants to get into the nitty gritty code. Well, f you go to a presentation for private equity, they're not going into the nitty gritty code. They're explaining to you why they should be buying this company. So I'm, what I do with marketing is I get pretty much into a new way of dealing it. And I think it's a better way of doing it.

Bret Keisling: Darren, that is very exciting. First of all, I just want to acknowledge in the EO A-ha Moments everybody's are different, obviously, but they're falling into buckets and you are not the first who just felt the fire felt the calling because of your research and just saw it was a better way. And the funny thing, Darren is a lot of what you're talking about and we're going to get into, we have been saying, but kind of in a staid way. I ran an ESOP company for three years, starting in '09 and in the new transaction where the employees were very, very skeptical I laid out how the company would have been dismantled if we had been purchased by a larger competitor. So the fact that that you're affecting lives. So, and the technical stuff you'll agree just in private equity, you can't overlook the technical stuff, but we're leading the wrong way.

Bret Keisling: Dude, I want to just turn over, get out of your way and let you share any way you want to go with the ESOPs are not boring. Keep going.

Darren Gleeman: Well to your point. You know, if you're speaking to an investment banker, an investment banker comes to you and he wants you to sell your company and he wants you to sell your company and what they can do is going to put it on an auction. Right? And so what they can do is look, right, you have a company that's great. So we're going to do is going to go out there. I'm going to talk to, you know, a dozen companies, a mix of competitors and private equity firms. And I'm going to send them information about your company. And I'm going to tell them, look, this company is worth X and you know, how much can you pay? Great, you set up the whole auction process. They come back with bids.

Darren Gleeman: It's a very simple process. The investment banker isn't going to actually explain the nuances of the code that they're actually going to do when they hire their attorneys to actually do the deal. You know, they're not going to get into that because they would fall asleep.

Darren Gleeman: And it's the same thing with ESOPs. I just don't get into the nitty gritty. Earlier we discussed, you know, in one of my posts, I say, if you sell your company to the employees, a hundred percent to the employees, it runs tax-free, right? That statement. If you sell your company to your employees, 100%, you can run the company tax-free, zero federal taxes, zero state taxes.

Darren Gleeman: Okay. I understand that, right? Someone that runs a bakery is going to understand that. Everyone understands that. Well, they're not going to understand if I explain to them, well, in order for that to work, you literally need to be a 100% S Corporation, not a C Corporation. Well, okay. Then they start asking questions. Well, I'm not really sure what I am. I think I'm an S Corporation but what does that matter? And then you don't need to get into the nitty gritty, because if they are a C Cooperation, well, you can give convert them into a C Corporation to an S Corporation. If they are an S Corporation you can convert them to a C Corporation. There's no reason to get into that nitty gritty. You know, and I'm showing you a picture of a pen. You know, what is this? It's a pen, Bret. I don't tell you that it's a place where you have an ink-filled cartridge that I put in created by this company... I don't say that.

Bret Keisling: So Darren -- and I want to do a little bit of full disclosure here. You and I never met until I saw your stuff on social media. We reached out. I said, come on the podcast. And you were like, tomorrow's great. And I love that enthusiasm, but we started, and this is the less prep time I've ever done with the guest. I just love what you're doing. Let's tee it up. But I said, Hey, just one or two points before we began. And I said, for example, on social media, you said 100% tax-free. And I said to you, before we started recording, hey, I'd probably point out that that's the S Corp. And what I'm realizing from what you're saying is, well, of course it's an S Corp! Yes, there are technical details. And quite frankly, I've done 275 podcast episodes. Some of them cover that. Why are we taking somebody and opening with here's really complicated business organization structure without talking about the sizzle.

Darren Gleeman: That's right. Because nobody really cares and if you got into the actual structure, you know, you lose the person, you lose the person in the first five seconds. Same thing. Like what I always say is the government subsidizes the loan. Well, do they really subsidize the loan? They do, but you know, can I get into the nitty gritty of the internal loan and the external loan? I can. Can I get into the idea that, you know, it's the lesser of 25% of the W2 payroll or the purchase price that you pay. Now, if I got into that detail, ehh.... I'm going to be shut off. Even as I just said that right now, people are zoning out on your podcast and not listening to it. Because it's like they start listening to everything else. Your brain can only handle a certain amount of things.

Darren Gleeman: And so that's why I just get into the very top level. And I do get people -- responses -- that, wow, I understand that! I get a lot of private messages from people like, thank you. I never understood that. You know, because a lot of times you get from people, I think you've probably heard it -- you know, this is one thing, and I was talking to Michael Keeling. He was the former president of The ESOP Association.

Bret Keisling: He's been on the podcast a number of times. I love Michael and everything he's done.

Darren Gleeman: Yeah. And so, you know, Michael is saying, he's like, you know, we always like, you know, bat back and forth on different things. And he's like, what you always get is, and I think President Obama said this when he made a comment about ESOP, which is "ESOPs are good when they're good." Like, what does that mean? ESOPs a good when they're good, you know, when people say it and then that just perpetuates it. And other people say it, but they don't really know what that means. "When it's good."

Darren Gleeman: What do you mean, when it's good? I mean, they're good much more times than private equity, right? I mean, private equity has twice as much risk of going under. You know, you hear a lot about when people say in terms of negatives, oh, you know, ESOPs, you know, there's a lot of debt on the books. They can go out of business. Well, private equity puts as much debt, but private equity debt, that's not subsidized! And they take out so much more money. It's much more likely for private equity company to go under. And companies go under. I think it's 9 out of 10 companies go under. So yes, ESOP companies go under also -- but they're less likely to go under because of all those amazing tax subsidies.

Darren Gleeman: I mean, if your company is running completely tax free, let's say you're making $10 million in net income. Well, normally you'd be paying $4 to $5 million in tax. With an ESOP you're paying zero state and zero federal tax! So yes, you're much more likely to be able to exist than other companies.

Bret Keisling: So, talk to me a little bit, and there's exciting areas of development with private equity. We did a podcast recently about the financing of Taylor Guitars, which Social Capital Partners in Canada arranged financing from a pension fund. As an ESOP trustee for seven years, I did maybe 125 transactions. I've always had a sense that private equity was incompatible with employee ownership in a lot of ways because of needs of return, you know, that sort of thing. Is there an incompatibility, like, should we be opening a door to private equity, more strongly?

Darren Gleeman: I think the problem with private equity, of them getting involved, well, there's two parts -- but private equity getting involved in selling one of their portfolio companies what they want to do is, you know, a private equity company comes in, they buy a company day zero, and then, you know, they have a mandate. They want to sell that company by day six, day sev-- year, six, year seven. So what they're doing is they're putting a lot of debt on their books and they're continually putting a lot of debt on their books. So when they want to sell it, even though an ESOP might be a really good idea for them, you're not gonna be able to get the loans to actually go out and take them out. And they don't care about having that tax deferment.

Darren Gleeman: The key thing with an ESOP and the biggest incentive, right, that people like, or that owners like, is that they can defer their capital gains tax and they structure correctly that capital gains tax goes away. So they don't have to pay tax on the sale. For the ESOP -- for the private equity structure, they don't care about that. The way they're structured is no one's getting that specific tax benefit. So they don't care about that. And then, yeah, they want to sell it as fast as possible and they want to make the money. So they really want an all cash deal. And with a ESOP, it's not an all cash deal. So what they will do is sometimes what they call the dogs. This is a company that is not doing great. It's not doing really poorly. You know, what can I do with that? Maybe that's something that they'll want to, you know, again, exit via ESOP, but you can't because it's too much debt on the books.

Darren Gleeman: However, there is an opportunity to invest in the GP portion of the E-- of private equity. And private equity is structured, as you know, you have the guys who start, right, and those are called general partners. And then the people that put the money, the institutions, are called limited partners. Well, the general partnership, right, they have a management company. That management company, that's a company that can actually become an ESOP. They can sell 30% of the company to the employees, right, and they can actually make that a part of it an ESOP. And that's what I've been pushing actually to some of the larger private equity firms. To actually turn it on its head, even though, you know, they're like, oh, I don't want to do ESOPs for their portfolio companies, but for themselves, they're thinking about that.

Bret Keisling: So there are two prongs and I'd love your thoughts, more on our message is not the right message. And give you one example, you walk in and you're a prospective selling shareholder, and you're going to be scared to death about the Department of Labor and potentially the IRS. And the reality is, again, as an ESOP trustee, you do every deal as if there could be some government looked down the road.

Darren Gleeman: That's right.

Bret Keisling: What we don't say at the conferences, and certainly don't say it loud enough, is that we talk about investigations and settlements and all that kind of stuff, it's only like 0.2% of all of the ESOPs. So it's an important issue, but is that another example of where we're just kind of beating in the fear without putting in the context that it's important, but this shouldn't be driving it.

Darren Gleeman: Yeah. So what you guys -- you, I mean, what we have all done -- by stressing those points is when you go, especially in the larger deals, where you look at larger deals, that's a point that the smarter investment banking firms that you're competing against, the private equity firms will say, oh, by the way, you know, you are now going to be regulated by the Department of Labor [DoL] and, you know, there's this one guy, you know, in the department of labor that really doesn't like ESOPs for whatever reason, you know, and you got to be careful about that. You know, so that really is a point and that's -- you know, we've kind of like pushed that point up. You know, I always tell people that. You know, whenever someone says to me what are the negatives, right away I'm going to tell them this is the negative.

Darren Gleeman: Look -- and the larger the deal, the more likely it's to occur. And so you need to make sure it's the right valuation. So if you have a valuation of $200 million, the DoL subjectively could come in and say, well, no, it's $190 million, even though they've never done a deal in their life. They somehow know that it's worth $190 million because they come on a Monday morning, five years later, when you had a recession and say, aha, you see, you know, which is ridiculous. But that is a risk factor. So they need to know that that's a risk factor. I just don't lead with it.

Darren Gleeman: You know, I always lead, if I explain to someone what it is I say, yeah, this is the benefits -- one, two, three, four, five -- and here are the negatives, you know, it's a pain in the neck also, right? What are the negatives? It's a pain in the neck and your regular by the DoL. Regulated by the DoL means that at some point, and it's a half a percent shot of it, less than half a percent, they might come in and do an audit and say, you paid too much. And then you have a battle, okay. It's just part of doing business. And especially at that size, you hire attorney and we fight them, and that's what you do.

Bret Keisling: And Darren, again, just taking from my own experiences seven years as a trustee, my partner and I, our first year or two, we built our practice on probably $3 to $10 million deals. And I'd say the average was five. Over the course of the seven years I was with the firm. I think our median, if that's the right word is $30 to $40 million overall, but we had several transactions in the two- to three-hundred million dollars. And again, I just want to not investigated in any of them. My former partner, by the way, likes to nudge me and because I no longer have fiduciary responsibility, he's like, don't jinx us, but I'm no longer with the firm.

Bret Keisling: But to your point, it's very important and we did every transaction properly because if there was going to be a look back, we're ready.

Darren Gleeman: Yeah.

Bret Keisling: But that's just having your experts do the right thing. In the context, Darren of ESOPs are not boring, pick another area that you think we are presenting wrong, that we are presenting in boring fashion.

Darren Gleeman: That's pretty much it, it's more of the same with ESOPs not being boring. I stress -- again, I like to stress one piece at a time, that they're not boring. And as you can see from my advertisements, you know, people have a -- what do you call it? They can only think about something for, let's say, 15 seconds or 20 seconds in our days without really looking at it. So that's really what I'm stressing is. I'm just trying to give them little pieces of what it is. You know, and I -- my next thing is ESOPs are sexy, you know?

Darren Gleeman: So that's my next point. ESOPs are not boring. ESOPs are sexy! Well, right? So who in their mind -- in their right mind -- would think that ESOPs are sexy? Well, you know what? It is sexy! Because again, a lot of people, I think in our industry, they look at ESOPs as a bottom up approach, meaning it's great for the employees. And that most of the time, it's always that it's great for the employees. Awesome for them and to the point where -- and they deserve it.

Darren Gleeman: I come at it from a completely different point. I don't really talk about the employees because of course it's good for the employees! You're given something for nothing! You're literally given a hundred million dollars for nothing.

Darren Gleeman: So yeah, we get that. It's good for the employees. But most people, right -- and I know this from my previous world, everything that they do is based on what's called fear and greed, right? And so with their company, greed is there. If their company is worth a $100 million and they can sell it for a $100 million to private equity, they don't want to sell the company for $50 million to an ESOP. They're not going to even think about that. Even if they really, really, really want to do well for the employees, they're just not doing it. But, if they can get $70 million for it and they can get these amazing tax benefits, and then you show them that they're actually gonna make more money with ESOP, that is sexy to them. That's interesting. That's not boring to them. So that's another way I go about it.

Bret Keisling: How much in your presentations, one of the things we talk about all the time, and this is sexy and very positive and not boring is you sell to private equity chances are, as a founder, your legacy has gone at some point. That's just the way it works. In employee ownership. You'll always be the founder. Is that something you talk about at all?

Darren Gleeman: I do mention it. I absolutely mention it. It also depends on, you know, the individual, the individual preference of what they're looking at. I think most people do like that. I think that a lot of times we'll put people over the edge when you, when they realize that. People don't realize that if they sell to private equity, your top employees, your top, your management staff, will be gone probably in 18 months. You know, we'll lay off 20 - 25% of the staff and the company that you built, to your point, that's going to go away. You have, you know, McAdams, well, it's not McAdams anymore, now it's going to be, you know, large private equity name. So it does make a huge difference. And so I'll put it in there usually, you know, after I go through all the benefits -- and people really are interested in their own personal benefits -- but the employee benefits and the culture that puts them over the edge.

Bret Keisling: So that's kind of a cherry on what you're presenting. That's just one more, hey, on top of everything else, that's this.

Darren Gleeman: It's the cherry, because you wouldn't have ESOPs, you wouldn't have it at all, right, without these incentives. It wouldn't wouldn't exist. You'd have none of them because people, most people wouldn't do it. And what we found right, is that the more incentives you have, the more ESOPs there are.

Bret Keisling: So let's talk about that and to put it in context and Darren, you, and I don't know each other, but I am as firm a booster [of] ESOPs, as I can. There are a couple of disconnects. Our pipeline is filled. Generally, if you are an established ESOP service provider, you're busy. Yet, meanwhile -- and our conferences and I love them all get sold out record attendance every year -- but here's the thing. 1996, we had 7,000 ESOPs. Today, we have 6,300 ESOPs.

Darren Gleeman: Makes sense.

Bret Keisling: So, obviously we're not doing something right.

Darren Gleeman: Nope.

Bret Keisling: And it's explained, often by, well, sometimes ESOPs combined, et cetera, et cetera. And I call shenanigans, that's not right.

Bret Keisling: So the two prongs and other guests have talked about this is clearly, we don't have the right message and you are addressing that. But the second prong is we're not talking to the right people. We can't be talking to the right people because this should be, for all the reasons you enunciate, bigger. So do you agree, are we not talking to the right people? And who do you think we should be talking to?

Darren Gleeman: Well, I agree. And I agree with one part of it, but I disagree with another part and I'll explain.

Bret Keisling: Please.

Darren Gleeman: I agree that there should be a lot more ESOPs. And the only reason that there are not more ESOPs is awareness. That's it. People are just not aware.

Darren Gleeman: Now I speak with, every day I speak with attorneys, I speak with CPAs. I speak with wealth managers and everyone says, yeah, I know about ESOPs. And at the end of my conversation, unless they really are like an ERISA trained and knows it -- at the end of the conversation, I always get and I'm sure you've heard this, that sounds too good to be true. Always get it. So, number one, I like that because that means they actually were listening to me. They didn't fall asleep, they understood it. And so, it's awareness.

Darren Gleeman: And so down the street, Tom's Bakery $5 million in EBITDA. Well, there's no way that they're going to ever do an ESOP because they don't know that it exists because Tom's Bakery, the owner, Tom, he thinks that an ESOP is some type of 401k pension plan thing. I don't know -- that's for my human resources guy. That's what he thinks. And when he speaks to his attorney, his attorney says, oh yeah, that, you know, that's -- it's a pension plan. It's a profit sharing plan. And it's pretty complicated. You know, it's good when it's good, but it's probably not for you. And that's what they'll say. And they have no idea what they're talking about, but that's what they say.

Darren Gleeman: So, I think once we have more awareness and really what I'm doing with my campaign is to get it out there a lot. So people start seeing it. And if they see this is not boring, this is sexy. This is like, what is that thing? I just want them to -- "what is it?" And then they go to my website or they speak to me, speak to anybody in the community, they'll realize how phenomenal it is. But we need to get them to the point where they're actually be speaking to people so they can truly understand it. That's the key.

Darren Gleeman: But the advisors are everything. You know, you need the advice of these people to tell you. And they don't need to understand everything. They just need to understand the bits that I'm telling them. They don't need the advisors don't need to know that QRP and 1042, they don't need to know that, or 409P. They don't need to know those -- sorry, everybody for using those terms -- but they don't need to know that. That's not what Tom's Bakery cares about, right?

Darren Gleeman: And in terms of the termination of the ESOP. Why we've gone from 7,000 steady to 6,000, I'm on a completely different world than everybody in the community. I think there's nothing wrong with a termination of an ESOP. Again, I am not tied to the beauty that the ESOP is the only way to go.

Darren Gleeman: The employees of an ESOP. They care about themselves and their family and they want to make sure that they have enough money and they're building equity in this company. They would love to cash out of their equity. Just like anybody in their company likes to cash out.

Darren Gleeman: Yeah, if in your account, you have something like a hundred thousand dollars in that account and you see it there. Well, there's nothing wrong with vesting automatically and getting that amount in your pocketbook over the next six months. There's nothing wrong with that. Not there's nothing wrong with that -- that's a good thing, because people do want to sell their assets. That's why we have the assets. You want to be able to take that out.

Darren Gleeman: So in the community, I found that people are very, they frown upon termination. I don't frown on a termination. If you have a company that you built, now you have a built this up with their on two hands over 15 years and now this company is worth five times as much money as it was before. Hell, yeah! They want to do an exit, just like any other human being would want to exit, except for the ESOP community. The people who are sitting outside of the community, look at that and say, oh, you know, we really want more ESOPs. So that's where I fall on that.

Bret Keisling: The funny thing is, and again, I keep going back to my own experience, as a trustee, I did some terminations where the companies were sold and as the trustee, I had to approve them and then generally put it a vote to the shareholders, the employee owners. And never would I have approved anything or suggested anything or agreed if it weren't good for the employee owners. So we miss them. And you're absolutely right. The community. This is a hot button topic because there are some that say employee ownership should be perpetual -- and co-ops, and collectives are designed, they will be, but ESOPs are not designed that way.

Bret Keisling: Just two quick points I did as a trustee, have opportunities where advisors would bring deals. And they would say, we are doing this for six years, and then we're going to sell. And for me as a trustee, that wasn't enough of an opportunity for the employee owners to make it a good ESOP transaction.

Bret Keisling: But I'm -- and again, that's case specific. That's, you know, we don't want to get bogged down in that. But let me give one more case specific, and I celebrate this. New Belgium Brewery out in Colorado, they make Mad Dog beer. They were one of the leading ESOPs in the country. They were active, engaged. They were one of my favorite parts of the sandbox. Well, their business grew big enough that they needed an infusion of capital and they felt their best option was to be acquired by a Japanese conglomerate. A lot of people, and I think it took place, I think the end of last year. Might be 2019 the pandemic has messed up everybody's clocks. But so a lot of folks mourn the loss and me and others were like 200 people just became millionaires. 200 people working in a beer factory, Laverne and Shirley, just became millionaires because as you, and I know if an ESOP is purchased and terminated, the vesting goes automatically. I think you'd said that, you know, people are paid off into their accounts. It is a beautiful thing! I mean, there's, there's no failure in the New Belgium story.

Darren Gleeman: No, absolutely not. But that, I love that story because it does show, you know, the differences in the community. And, you know, in that instance, it's to me, it's black and white. It's great for the employees. But a large part of that community are like, well, it's not for the society as a whole, you know, for America as a whole it's not great. You know, and again, that's, we're not in a society in our capitalistic democratic society, which is "as a whole" in the country. That just doesn't work. It works for New Belgium. It really works phenomenally well for those employees, and that's the whole, that is the epitome of what an ESOP is all about. You sell it and they all become millionaires. A hundred percent.

Bret Keisling: And Darren concurrent to the New Belgium transaction, there was another transaction. Coors, the quintessential Colorado company got sold to a bigger competitor, I can't remember which one. And concurrent with New Belgium's transaction, where by the way, the Japanese conglomerate was doubling down on commitment to New Belgium's footprint, Coors shut down Colorado factories and moved a bunch of jobs to Chicago.

Bret Keisling: So businesses are going to sell. I'm just saying again, from an employee owned transaction and a non-employee owned transaction, I'd rather have the New Belgium than, you know, Coors lose their job. That's me as an advocate. But the buying and selling of businesses is part of our system.

Darren Gleeman: The reality is, if I'm not going to sell to the ESOP, I'm going to sell to a private equity or to a competitor. The reality is if I sell to an ESOP, everyone keeps their jobs. They become owners. Everything is really good for them. If I sell to a competitor, I sell to private equity, people will get fired and they will, you know, the management will get fired. I mean, that's just the way it is because that makes sense for business. An ESOP, hands down, is a much better structure. Much better structure.

Bret Keisling: And those facts are neither boring or I'm sorry, they aren't boring. And they are sexy. I mean, that's part of the story that you're telling.

Darren Gleeman: That's my story Bret, and I'm sticking with it.

Bret Keisling: All right. Anything, Darren, first of all, this is cool. And I'll be honest with you. I I love everything that you have said, and I love what I've seen on social media. What is really, really cool for me is your exuberance -- it's almost always saved for the cultural side of employee ownership. You know, it's the folks who work with the employee owners and go in and do the, I'm going to say "rah, rah" -- not disparaging. A lot of what I do is stoking up the employee owners. And dude, I love your exuberance. And you started with, I don't even talk about the employees! You know, it's your exuberance is on the transactional side, is on the creation. And I love it because you're still teeing up all the cultural people to step in at the right time and hey, now teach the employee owners how to be employee owners, but you don't even have to get there with your approach. I think that's wonderful.

Darren Gleeman: Yeah. It's the top-down approach. I hope more people do it. And I think that really will stoke the awareness. You got to explain to people what this is. It's not a pension plan. A pension plan is part of it, but I never even mentioned word pension plan when I'm talking about my ESOPs. I don't, if I'm giving a presentation, I don't talk about as a pension plan because pension plans are boring. And yes, you use the pension plan. But the only reason we use the pension plan is when Louis Kelso started doing it with Peninsula [Newspapers, Inc.] back in the 1950s, he had an idea. How can I create this leverage buyout? And he knew there was a deal that happened back in the 1940s. And he's like, I'm going use their same exact deal. And he created the leverage buyout, but he wasn't thinking, oh, we need to do, I want do a pension plan. It just happened he used the pension plan structure to create this leverage buyout.

Bret Keisling: Incredible. And by the way, Louis Kelso is the one I got the 1996 figure from of 7,000. ESOPs I mean. He's the granddaddy of all of us.

Bret Keisling: So, Darren talk for just a moment. And first of all, who do you want to talk to in terms of converting to an ESOP? I imagine anybody who sees your ads, anybody who hears the podcast and likes your approach, but can you narrow it down a little bit? Who is it that you're looking to talk to about establishing ESOPs.

Darren Gleeman: I'm looking to speak to the companies that are slightly larger. And I think the smallest company that I'm looking at speaking to is has about a $3 million EBITDA or $3 million net income. And 20 employees really is the floor. I think when you go lower. And I think there are a lot of firms that do a smaller ESOP for smaller companies. You know, that's great. I'm not sure how well they work. I just don't know about that world.

Darren Gleeman: Sometimes these companies that are having, you know, I've seen -- I've been to some of the conferences and so sometimes you see a smaller company instead of having an institutional trustee, which is to me imperative, they'll have someone, one of the workers at the company was the trustee, because they don't want to pay the money because it's a smaller ESOP. And then what they'll do is turns out they're having the bookkeeper who was working with the plan and they're actually the administrator of the plan. And so then they get caught up in various issues, which they don't have the ability to do. The trustee does not know that he or she is a fiduciary, doesn't even know what that means to be a fiduciary. I think there's some issues there. So we feel that the larger ESOPs, you know, again, it's not large, but a $3 million floor is our sweet spot, is that is the bottom line of our sweet spot.

Bret Keisling: That is good to know. And at a certain point with the real smaller companies, it's a legitimate question about the transaction costs. And I don't want to go down that rabbit hole, but if you're really, really small to get the deal done correctly with the various advisors is going to be a cost. So, I think you're in a good spot and that's just a start. Is there a top end on, on how big you go.

Darren Gleeman: No. We're structuring right now, a multi-billion dollar supermarket chain out west, which is, could be really good. I mean, we're doing a dual track. They're looking at doing a private equity deal and/or an ESOP. So, we're doing the ESOP track. So yeah, that's a perfect size.

Bret Keisling: That's also would make a great case study, Darren and again, that's a boring term, but you know, of whatever they end up doing simultaneously, they're looking at ESOP, they're looking private equity and then does it become a combination of the two or do they pick one or the other? That's just a great thing for you to be able to track.

Darren Gleeman: Yeah, it is a great thing. And you know, most likely they'll, I think most likely they'll pick one. But you know, the structure of an ESOP is pretty important. You know, it's not a -- there are a lot of simple plain vanilla transactions that you can do, but most are not plain vanilla.

Darren Gleeman: There are a lot of companies for instance, that -- I've spoken to companies, I've seen it where they just, they were an S Corporation and they became a 100% S Corp ESOP. And then I was talking to the owners, it's fairly sized companies, about the 1042, which is, you know, they didn't do the 1042. And just so your listeners know, the 1042 allows you to get your capital gains tax when you sell your company, it allows your capital gains tax to be deferred. And that's called 1042 of the, of the code, so I don't like to get into the name.

Darren Gleeman: So they didn't know about that. And I'm like, well, you at first, right, they first structured you as a C Corp. Right? And they're like, no. You know, there's, people just don't know these things and they weren't advised correctly. And then this other person who is fairly -- this person's moving up in the ESOP world, they were CEO of an ESOP company. And we're talking, I had a Zoom meeting with them and I'm like, oh, well you have warrants. And they're like, no, I never got any warrants. I'm like, well, and I explained to how the warrants worked and they're like, I didn't even know that that existed.

Darren Gleeman: And that's just not understanding capital structure. You know, private equity warrants all the time. All deals are using the mezzanine structure, but they had no idea how to structure it. So that there's a lot in the structure.

Bret Keisling: And here's what I love about that, Darren. You are taking an approach of shaking things up, and I support that. For us to go from 6,300 ESOPs to 10,000, we need to kind of, in a very positive sense, disrupt a little bit and do things differently. I love the fact though, hey, someone wants to go to 1042 you will go deep on 1042. It's just not where you're opening salvo is. So I think that's, that's excellent.

Darren Gleeman: Yeah, I just won't mention the word, but the number of 1042, I'll just say, when you sell your company to your employees via an ESOP, you get that you earn money. And let's say you sell your company for a hundred million dollars. Normally you're paying about 30% capital gains tax, but with an ESOP you're paying zero tax. That tax is deferred. You structure correctly, you'll be deferred forever.

Darren Gleeman: That's my, that's my pitch. I say that all the time, a thousand ways, but always say that. I just don't go into the actual, you know, 1042 and QRP [Qualified Replacement Property]. I just don't get into that, unless they ask me.

Bret Keisling: Darren, I want to thank you. I, we've spent a decent amount of time together and I could keep going, but at the same time, I don't want to end up with a three episode, three part episode. I love your passion. I guess the final thought is you mentioned that -- or final question -- you've mentioned that you've talked regularly with lawyers, presumably, you know, folks in the valuation field all the time. How can we get your message out to the advisors? You know, in other words, and my concern, first of all, if you're an ESOP professional learn from Darren's approach. That excitement is going to be very positive. But I'm talking about the bakery lawyer that you had referenced who, frankly, doesn't know anything about it. How do we get educating those folks?

Darren Gleeman: It's a lot of difficulty. It's a lot of difficulty. I had a meeting yesterday with, it was a top M&A [Mergers & Acquisitions] attorney in a very large firm. And I wanted to start talking about large companies doing ESOPs. And they had the meeting and, oh, by the way, this is our ERISA partner. And as soon as the ERISA partner was there, I knew that that's not a meeting that I wanted because -- and exactly what happened, I knew it was going happen, was the ERISA attorney started talking to me and I started talking to the ERISA attorney and I saw, I saw the M&A partner just turn off. And you could see him with his phone, like this, looking at his phone and nodding and looking at his phone. And I kept on trying to drag him back in to the conversation, but to him, M&A is M&A, and you are a pension plan. And so it was very difficult. And only because that other guy was in the room. If I only had the M&A guy in the room, he would be forced to talk to me and by the end of that conversation, I know he would have said, wow, that's too good to be true. But because the ERISA guy was in, he just turned off.

Bret Keisling: And it's a shame that the ERISA guy didn't take the opportunity to hear you as well and broaden what that person was doing.

Darren Gleeman: He couldn't because though they're both partners, the M&A partner was just higher, up, much more higher up. And the ERISA guy was talking in code. And when he was talking to me in code, and he was talking to me about the intricacies of various parts of the ESOP, which made me want to fall asleep also, you know, he wasn't getting into what I was getting into. And he wasn't going, even for this M&A guy, how was this an M&A transaction, right? And I explained to him, this is an M&A transaction, but, you know, again, it was just like speaking to anybody, just like speaking to any business owner. If you get into the minutia, they're not going to really hear you.

Darren Gleeman: For the M&A guy, he wants to hear that if you structure the deal and you sell the company to PE and you work with those guys, work with your owner to sell to these other guys, what's going to happen, number one is you're going to lose the client, right? You're going lose the client. Do you even think about that? If you sell to an ESOP, you're not losing the client and you're gaining more business. Right? And so that perked him up when I explained that he's like, oh, that's a good point. So that actually did perk him up. And I said, look, the transaction, it's the same amount of money you're going to make if you do an M&A deal, if you do an ESOP deal. And the structure is intense. It's very clever. You have to be really good at this structure. I said, you really need top attorneys to do this. You know? So that kind of got through to him.

Bret Keisling: That is great. And it's reminds me, I've talked to a lot of local elected officials around the country or candidates for local office. And when I talk to them about employee ownership, I am leading with, hey, do you know, an employee owned company is significantly less likely to sell, move their operations and it helps your tax base. And suddenly the conversation with local officials is keeping community jobs. It's not the tax, it's not the IRS, it's not the DoL. So dude, you are very much onto something. I'm going to suggest my listeners follow you on LinkedIn. You're putting a lot of your content out there, and it really is just refreshing. Are there any other ways that people can keep track of what you're doing? Is that the best way?

Darren Gleeman: Yeah, through LinkedIn is a great way. I put out content all the time, but I think it is exciting, not boring content. It's fun to look at. And if you go to my website, which is like Management Buyout, MBO Ventures dot com. I think my content there is also, you know, easy to look at, easy to get through and it's chock full of information. So that's the way to follow me.

Bret Keisling: We're going to include links to the website on our transcription of the show notes, but you just dropped something in. I knew it was MBO. Did you say magic buyout?

Darren Gleeman: [Laughter.] No. No. That's my New York accent. Management Buyout, MBO, Management Buyout.

Bret Keisling: [Laughter.] Dude, first of all, I apologize. But I was like, man, you are all in on the message if it was magic buyout, I love that.

Darren Gleeman: It is Magic Buyout!

Bret Keisling: From now on, that is great...

Darren Gleeman: From now now on! Well, literally it is from now on it is Magic Buyout, because that was such a brilliant idea that you just had and I'd like to now co-op that, and it is Magic Buyout. I love it.

Bret Keisling: Darren here on social media -- or on my podcast for all to hear you have credited me for saying it, and now it is yours to use forever. So, rights are given.

Bret Keisling: Dude, I got to tell you, this is breathtaking for me in two different respects. First of all, I'm now a believer. I did not know whether you were an oracle or a madman and the answer might be yes, but I am a believer. ESOPs are not boring! ESOPs are sexy! But here's the damnedest thing. We didn't talk about culture! I said this earlier, you've got me jazzed up on the transactional side of ESOPs and I did them for seven years and I've never felt the vibe that I've gotten from you. Dude, you are doing powerful work and I hope that your Magic Buyout program, which is now a course available. It's a Masterclass -- that I want to cut off.

Bret Keisling: Dude, thank you for everything you're doing. Thank you just for being a light in ESOP world and I hope more and more people will be like Darren.

Darren Gleeman: Thanks for that positivity, Bret, that really makes me feel good and it makes me want to keep on going. Seriously, that's nice. Thank you. I like that.

Bret Keisling: You're doing great stuff. Darren, thank you very much and we look forward to having you back on the podcast.


Bret Keisling: Before we go, I just want to remind you that a number of us, including myself, are growing the EO/ESOP ecosystem on Clubhouse. Check out the Clubhouse app. Look at some of my posts on social media and look for me on Clubhouse at EO underscore Bret with one "T". That's EO_Bret with one T. There are a lot of great employee ownership conversations going on in Clubhouse and the only thing we're missing is you.

Bret Keisling: Hey, for the last year, a little bit more, our country's been going through a whole lot together and that's how we're going to get through it, together, which is in the best spirit of employee ownership. Thank you so much for listening. I'm Bret Keisling; be well.

Bitsy McCann: We'd love to hear from you! To contact us, find us on Facebook at KEISOP, LLC and on Twitter @ESOPPodcast. To reach Bret, with one "T", email, on LinkedIn at Bret Keisling, and most actively on Twitter at @EO_Bret. Again, that's one "T". This podcast has been produced by The KEISOP Group, technical assistance provided by Third Circle, Inc. and BitsyPlus Design. Original music composed by Max Keisling, archival podcast material edited and produced by Brian Keisling.

Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.

A note on the transcript: This transcript was produced by Temi, an automated transcription service. While it has been reviewed by The ESOP Podcast, we can not guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.


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