Owner Sells Family Business to Employees to Keep it Family Run
CRANBERRY TOWNSHIP, PA – For Mark Nicklas, running Nicklas Supply was in his blood.
The company was founded by Elmer J. Nicklas Jr. in 1956. His sons Mark and John, were groomed to run the wholesale plumbing supply business. Together, they grew the business which today has five stores with nearly 70 employees serving a majority of Western PA.
Upon John’s retirement in 2013, Mark was still 10 years away from retiring. The question became, “What will happen to the family business in the next decade?” Mark was concerned not only for his three sons that had built their careers on carrying on the family business, but also for all his employees, which he considered an extension of his family. Mark would receive several offers to sell the company, but he knew that was not the route to go because it would jeopardize his parent’s legacy, along with the job security of his employees. But Mark had to also find a way to satisfy the shareholders of Nicklas Supply.
When Mark expressed these concerns to his financial advisor, it was suggested that he go the path of an Employee Stock Ownership Plan (ESOP) and knew just the person to which Mark needed to speak.
Dan Zugell, Senior Vice President for Business Transition Advisors in Pittsburgh, has helped dozens of retiring business owners set up a succession plan that makes sense for their business. After sitting down with Zugell in 2018, Mark saw that selling the business to his employees and creating an ESOP would allow his family to retain executive and management roles without outside interference while bettering the lives of his employees.
“From our initial conversation, Mark expressed his desire to honor and preserve his family legacy while doing right by his employees. The ESOP allowed the family to fulfill their desire to expand the definition of ‘family’ to include the employees whose efforts help make Nicklas Supply the successful and respected company it is today,” Zugell said.
There are already dozens of companies in and around Pittsburgh that are either partially or fully employee owned. They include Voodoo Brewery, Thermo Twin Industries, Silver Star Meats, Tech Met, and KTA-Tator. There are roughly 300 employee owned companies across the state, and about 6,000 nationwide.
Zugell is also a founding volunteer of the Pennsylvania Center for Employee Ownership (PaCEO), which educates business owners about the benefits of employee ownership.
“What Mark has done is amazing. He preserved the legacy of a great company. He ensured the financial future of his employees. He created a tax-free company. And he bolstered the future of the great community of Cranberry Township. All of this while getting full value for his company, to care for his family’s future. We congratulate the whole Nicklas Supply community and thank Mark for being a genuine model of forward-thinking business leadership,” Kevin McPhillips, PaCEO executive director, said.
Formalized by Congress in 1974, workers pay nothing to participate—the company takes out a
loan to buy the shares from the previous owner or shareholders, then divides the shares among
the employees over time. However, the ESOP structure allows the Nicklas family to continue to manage the direction of the company indefinitely into the future.
“What I like about having an ESOP is that everyone now has skin in the game,” Mark said. “The better the business does, the more their ESOP shares are worth.”
Another advantage to ESOPs is that profits from the employee-owned portion of the company are tax-free.
“The tax ramifications are huge for us and we can reinvest profits back into the business,” Mark said.
Martha Nicklas, Nicklas Supply’s Product Buyer for the Kitchen Department and Mark’s wife, said the ESOP fit the culture of the company better than any other option.
“People don’t care how much you know until they know how much you care,” she said. “Integrity, teamwork, responsibility, and giving back to the community mean a lot to us, and this ESOP proves it.”
The popularity for ESOPs is growing in Pittsburgh. In September, the city kicked off the nation’s first citywide employee-ownership task force and in April, more than 1,900 people attended the Employee Ownership Conference hosted by the National Center for Employee Ownership in at the David L. Lawrence Convention Center.