How a Union Construction Company Solved Succession Through Employee Ownership

Matt Lessard faced a succession puzzle that many multi-generational construction companies know well. As president of Wilcox Construction, founded in 1963 in the Seattle area, he'd tried family succession and management buyouts. Neither worked as hoped.

His experience navigating three different succession strategies led to a solution that transformed the company: employee ownership through an ESOP. His journey offers unique insights for union contractors and family businesses considering their next chapter.

Learning from Failed Succession Attempts

Founded by Al Wilcox in 1963, the company initially focused on large public projects. Matt's father Jim Lessard joined as superintendent in 1964, establishing the multi-generational foundation.

When Jim retired abruptly in 2004, the company valuation was actually negative, creating difficult financial and emotional dynamics. Matt learned firsthand how challenging it can be to succeed a parent in family business environments.

The subsequent partner buyout with Bob Wilcox required extended negotiations due to valuation disagreements, highlighting the challenges of internal succession when ownership stakes aren't clearly aligned.

By the time Matt started planning his own exit, he recognized that neither his children nor his partners' children showed interest in the business. That's when he started looking at employee ownership with a ten-year planning horizon.

Strategic Business Transformation

In the early 1980s, competitive public sector challenges led partners to pursue private work, particularly grocery store remodels requiring specialized night work capabilities.

A chance encounter through an architect led to Wilcox becoming a primary Starbucks contractor, completing thousands of coffee shops across the Western United States, Canada, Philippines, Switzerland, and London. This relationship became the company's growth catalyst for decades.

ESOP Implementation That Exceeded Expectations

Despite initially believing the earn-out targets were unattainable based on historical performance, Wilcox exceeded the aggressive metrics during their first two years, providing additional value to selling shareholders.

Strong performance enabled the company to accelerate debt paydown, expecting to retire their loan nine months early. This positions Wilcox for enhanced growth focus without acquisition debt burden.

Unique Challenges of Union Shop ESOPs

Wilcox's experience as a union contractor provides valuable insights:

Participation Structure: With over 100 total employees, only 24 non-union staff participate in the ESOP, creating a concentrated ownership group primarily consisting of leadership and management personnel.

Complementary Benefits: Union employees maintain existing pension and benefit structures, while ESOP participants receive equity compensation without contributing personal funds.

Career Development: Several union members have transitioned to non-union positions to participate in the ESOP, recognizing the long-term wealth-building potential versus traditional pension benefits.

While promoting employee ownership creates complexity when union members are present, clients respond extremely positively to working with employee-owned companies, viewing project managers as true owners with enhanced accountability.

Smart Tax Strategy: The 1042 Option

Matt's implementation of the 1042 capital gains deferral option demonstrates strategic tax planning. Operating as a 100% S-corporation ESOP eliminates corporate income taxes, providing substantial competitive advantages.

Working with specialized consultants, Matt successfully executed the 1042 deferral, treating it as a "life insurance policy" for estate planning rather than short-term investment strategy.

Key factors for 1042 decisions include:

• State capital gains tax implications
• Interest rate environment impacts
• Long-term estate planning objectives

Matt elected to utilize 75% rather than 90% of available deferral capacity, ensuring positive cash flow regardless of interest rate fluctuations.

Real Impact on Workforce Management

The ability to offer immediate ownership to new employees provides significant competitive advantages, particularly for younger professionals who might wait decades for ownership opportunities elsewhere.

All key leadership personnel remained throughout the transition, demonstrating the retention power of employee ownership. Employees increasingly understand the connection between company performance and personal wealth, leading to more strategic decision-making.

Younger employees particularly value the ownership opportunity and involvement in company direction, aligning with contemporary workforce expectations for meaningful participation.

Planning for Long-Term Success

Matt envisions a three-phase timeline:

• Years 1-7: Focus on debt retirement and operational stability
• Years 8-15: Emphasis on growth and market expansion
• Years 15+: Diversification and wealth distribution management

Critical Lessons for Construction Owners

Matt's experience yields important insights:

Start early. Beginning succession planning with 10+ year horizons allows time for leadership development, cultural preparation, and optimal transaction structuring.

Prepare for administration. ESOP management requires dedicated attention to annual valuation processes and compliance requirements.

Get professional support. Leveraging experienced ESOP consultants and trustees proves essential for successful implementation.

Building Something That Lasts

Matt's experience demonstrates how thoughtful succession planning and ESOP implementation create lasting value for construction businesses. For union contractors and multi-generational businesses, employee ownership provides viable succession solutions while preserving company culture and rewarding contributing employees.

When family succession doesn't work and traditional sales aren't appealing, employee ownership offers a proven pathway that benefits everyone involved.

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