During a Senate Health, Education, Labor and Pensions Committee hearing prior to the Congressional recess, Sen. Bill Cassidy (R-LA) questioned witnesses about capital barriers for small businesses.
00:01Mr. Dupuy, just for those people watching, we've talked about kind of a corporate governance,
00:06as in not as in there's a corporation with somebody at the top,
00:10but it's kind of a, Mr. Barton spoke of kind of almost a committee of the whole
00:13when they face tough times.
00:15I'm sure it varies, but at times a company feels as if it may exit a line of business.
00:21I don't know if you've done that, you all have been expanding.
00:23But you may exit a geographic location which formerly you were in, now you're not.
00:28How do you manage that?
00:30Because you've got employees there who are invested,
00:32but you're going to pull out of a geographic area and you leave them stranded.
00:37Tell us that.
00:39In our case, we've been fortunate in that we don't operate plants or facilities
00:44where you have large numbers of employees that could be displaced.
00:48But we do operate in a variety of communities, and on occasion we are,
00:52our contract may not be renewed.
00:53Again, fortunate in our case in that we are expanding,
00:58and we actually are under a shortage of medics and paramedics.
01:04And so we have been able to then take employees who are sort of displaced, if you will,
01:08and allocate them and use them elsewhere in the organization.
01:11So, Senator, we've not come across that specific issue.
01:15Mr. Barton, you suggested that there may have been,
01:17there was a price of wheat in Kansas apparently went too high,
01:20too much protein in it everybody wanted, you should have bought the French stuff.
01:24But that said, did you have to do layoffs?
01:27How do you manage that?
01:28Did people voluntarily cut my pay?
01:31The, I mean, in that case, no, there were no layoffs.
01:35I think it really, and I think the, there was a reference earlier about kind of,
01:40specifically with public companies, kind of the requirement for quarterly reporting,
01:46and quarterly performance and quarterly targets, obviously we have those targets.
01:49We have those reporting, we have those targets.
01:51But our financial model is built on sustainability.
01:54It's not, it's not built on meeting, meeting quarterly, quarterly targets.
01:58So I think that's what certainly helped us through.
01:59I mean, I, I think back to, of 2022 and fiscal 22, it wasn't a great year.
02:04But we, we, we kind of strengthened our foundation and, and, and set us up for, for, for, for future success.
02:10Basically allowing us, allowing financial performance to, to, to dip slightly.
02:15So, so that we could be stronger on the other end.
02:18Dr. Blasey, the, you had mentioned the need to have access to capital markets in order to finance these.
02:26Presumably, one, small business association is there.
02:30Secondly, obviously banks are there.
02:32I think you're proposing something different than those two.
02:35Tell us the shortcomings of using an SBA loan or of a traditional bank or bonding or whatever to do the, to financing.
02:44Thank you for that question, Senator.
02:46It's really a core question.
02:49First of all, the, the small business administration has generally not been friendly to ESOP financing.
02:57And I know this isn't the SBA committee, but we'll just leave it at that.
03:00There's a lot to be said about that.
03:02So that's not a really good route.
03:05Secondly, most ESOPs, if they're say manufacturing ESOPs or, or, or, or service ESOPs, don't have the hard assets to get more than 40 to 60%, sometimes even less than that, of the capital needed to do an ESOP leverage buyout from a senior lender from a bank.
03:24So that's where you need another.
03:26So let me ask, though.
03:27Yes, sir.
03:28There's a certain amount of discipline there.
03:30The U.S. government has a bad history of investing in dogs.
03:34So lender is always the example that people use.
03:37Politically motivated, turned out not so well.
03:40And then that burns everybody and we start passing on things that maybe we should do.
03:44So how do we, if we correct the valuation, because that really seems to be the issue, you could go to a senior lender if we have the Cain Marshall bill and therefore maybe get the correct valuation and the correct purchase price as opposed to inject the, because my side is kind of nervous about this, as opposed to inject the federal government into what will ultimately could be a political decision.
04:08You see where I'm going with that.
04:09Yes, I see where you're going.
04:11Well, I'm not an investment banker, so I don't want to give a definitive response on that.
04:15But I will say I have studied these kinds of transactions and done interviews with professionals who have done them.
04:22And even with the correct valuation, it's hard for a potential ESOP transaction to get the amount of capital it needs to get to effectuate a majority or 100% ESOP buyout from a retiring business owner.
04:37And in that answer, you imply that the buyout does not have to be 100%.
04:41I could sell 60% of my business.
04:45Mr. O'Rourke could sell 60%, retain 40% with maybe a game plan to sell in the future or maybe to pass to his heirs, correct?
04:51That's absolutely true.
04:52And there are some wonderful examples around the country of 30% and 40% ESOPs where the families want to keep the other 60% and they work together with the employees.
05:02Family businesses, our research shows, like profit sharing.
05:05They like employee ownership.
05:06They like their employees.
05:09So the federal loan program would allow the luxury of 100%, but the absence of that program does not necessarily eliminate the ability to create an ESOP, even if it's only partial employee ownership?
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