ESOPs (employee stock ownership plans) continue to carve a deeper niche within the IT solutions provider ecosystem. Put simply: Instead of selling an MSP or IT service provider to a strategic buyer, some founders are transitioning business ownership to their employees.
The latest company to embrace an ESOP ownership model is Cincinnati, Ohio-based Ingage Partners. The company confirmed the transition to a 100 percent employee-owned organization in May. Following an unspecified transaction that led to the transition, Ingage Partners’ founders will sell and transfer stock to a qualified retirement trust that will annually distribute the stock to eligible employees, the company said.
Ingage offers a variety of IT services ranging from Software Engineering and User Experience expertise to Delivery Management, Organizational Transformation, and Product Management. It works with organizations in the Education, Financial Services, Retail, Healthcare, and Financial Services Industries.
Company Vision
According to Ingage’s co-CEO and co-founder Michael Kroeger, this transition is in keeping with the company’s long-term philosophy. “Ingage Partners was formed from a vision that business should operate to be a force for good,” he said. “This is foundational to being a Certified B Corp. 100 percent Employee-Ownership is a culmination of this vision and central to honoring the values of our business.”
The current management and operating structure will remain intact while the ESOP structure will place an emphasis on the firm’s collective interest which, according to co-founder and co-CEO Kelly Dolan, is to be a positive force for good. “Each Employee Owner will continue to be aligned to this vision for the life of the business,” she said.
Indeed, Ingage appears to have made community engagement a tentpole of its operational structure. The company has donated a portion of its profits every year since its inception to local nonprofit organizations and created a culture of volunteerism through Paid Volunteer Time Off. The ESOP will further cultivate long-term growth and commitment from Ingage Partners’ team of Developers, UX Designers, and Organizational Transformation experts,” the company said.
According to Ingage Partners, original founders – Kelly Dolan and Michael Kroeger – will continue to have a long-term vested interest in the company, function as corporate officers, and remain on the Board of Directors.
The ESOP Wave
Additional IT solutions providers and MSPs that have ESOP ownership models include:
An ESOP provides a unique option for companies to provide perks to their employees through various tax benefits. For founders, ESOPs are often a way to unlock value from their companies while employees pay no tax on contributions to the fund.
Various studies have shown additional benefits to ESOPs, perhaps the chief among them being increased job stability. Another study showed that the average worker at a US company with an Employee Stock Ownership Plan (ESOP) has accumulated $134,000 in wealth from his or her stake.
Still, ESOPs aren't ideal for all companies -- and they do introduce some risks for employees. For companies with consistently weak earnings, poor internal controls, and weak succession plans, an ESOP can be decidedly detrimental to growth.
We could be sitting on the crest of an ESOP wave in the United States. The Main Street Employee Ownership Act of 2018 passed the House of Representatives on May 1. The introduction of the Act was hailed by the ESOP Association and may mean more ESOP announcements are on the horizon.
