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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowA program rolled out yesterday by State Treasurer Richard Mourdock aims to encourage more Indiana business owners to sell companies to their employees.
The Treasurer’s Office will subsidize banks for loans used in transitions to employee stock ownership plans, or ESOPs.
Taxpayers will more than recoup the program’s annual cost of $500,000 a year because of the tendency of ESOP companies to stay in the state and not outsource work overseas, Mourdock said. ESOPs also help workers save for retirement and create incentive at all employment levels to make the companies succeed.
“This is one more thing we can do to help existing businesses keep those jobs,” he said in an interview.
The $500,000 will be taken from the $400 million to $700 million the state typically has invested in banks.
Indiana Bankers Association Executive Vice President Paul Freeman said his group applauds the new program.
“He certainly has our support in concept. Encouraging employee ownership is a good thing,” Freeman said. “We can only wait to see how our member institutions respond.”
The bankers group has some concerns, Freeman said.
The program is available for only three years, not the seven to 10 years typical of an ESOP transition. And bankers will need to be educated about the complex nature of the transactions.
Still, the program likely will help persuade some owners and bankers to go through with ESOPs, Freeman said.
More than 200 ESOP companies exist in the state.
Some are big. Herff-Jones Inc., an Indianapolis company that sells high school rings, yearbooks and other educational products, has about 500 employees in the state and 4,000 workers across the nation.
In November, Wood-Mizer Products Inc. completed an ESOP that started in 2004. Indianapolis-based Wood-Mizer, which makes portable band saws for turning logs into board, generates about $100 million a year in sales.
Carmel technology company Telamon Corp. also underwent an ESOP, in 1999.
The program subsidizes up to $5 million of an ESOP transaction. Mourdock anticipates the program helping about 20 companies a year.
Companies owned by baby-boomers might be among the most obvious targets for ESOPs as the owners look to retirement, he said.
Mourdock said the main risk to taxpayers is the potential for companies to fail. The most likely scenario for failure would be owners’ deserting the companies shortly after the sale and leaving less-experienced managers to cope.
However, he said he is trusting banks to conduct thorough credit analysis, as they would if the subsidy weren’t available.
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