Latest / Construction ESOP Collective / How Legacy Utility Group Reached $84M and Chose Employee Ownership | David Jaeger

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How Legacy Utility Group Reached $84M and Chose Employee Ownership | David Jaeger · Construction ESOP Collective

• speaker-0: ⁓ it just felt right. It was one of those things where it just honestly felt like a win-win. It was an awesome opportunity for my dad to ⁓ sunset, create liquidity, still have a little bit of chips on the table because we didn't fully 100% Aesop, we did 49%. And then it was an opportunity for us to really kind of put our money where our mouth is. Everybody says, you know, your business is family, or you know, we're all we all want to, you know, have an owner's mentality, but actually we were able to put shares in people's hands. And ⁓ and say here you go, this and and and give them an opportunity to to own something beyond just a four ⁓ one K and you know, and and beyond just their paycheck. It this is an opportunity for them to be an owner and create an opportunity for them to create some real wealth ⁓ post post retirement. speaker-1: Welcome to the Construction Aesop Collective. I'm Chuck Mazzanti, Senior Vice President at Christiansen Group Insurance, and this is the show where we explore the wins, challenges, and real-world lessons of employee ownership in construction. Each episode brings insights from CFOs, former owners, and employee owners who are building something bigger together. Let's get into it. On today's episode, I sit down with David Jegger, CEO and Visionary of Legacy Utility Group. David shares why he chose employee ownership over a private equity sale, what that transition looked like from the inside, and how it has shaped the company's culture and future. We also get in the leadership, succession, and what it takes to build a company designed to last. I hope you enjoy my conversation with David Jagger. Dave Jigger, welcome to the Construction ESOP Collective. Pump to heavy eye man. speaker-0: Thanks, Chuck. Looking forward to it. speaker-1: ⁓ Dave is the CEO of NORCAL Pipeline Services out in Roseville, California. And and Dave, just to kind of level set, I'd like to get the ⁓ you know, how'd you end up where you are today? You know, tell the audience your your come up within the construction field, how you ended up steering the ship, and then we could get in the why you went Aesop after that. speaker-0: Yeah, I'm a third generation construction ⁓ business owner in California. My grandfather started in the fifties and then ⁓ my dad ⁓ bought him out in the eighties. And then I I started NORCal in two thousand seven with my dad as business partners and ⁓ he kind of re led the ⁓ the charge as the executive and I was the face of the business out in the field. understanding the equipment and operational, getting things done and also doing the sales part of it when it was just him and I at beginning. speaker-1: Got it. And was that I mean, was it something that through high school in the summer times you were working in the field and you know, college when you were back from school, what what did that look like? speaker-0: Definitely. I mean, ⁓ even ⁓ my unwillingness to go to work was forced on me sometimes as a kid, right? ⁓ I was more interested in in ⁓ in school and sports and things like that. But ⁓ any downtime my my dad and my grandfather both ⁓ pushed me and my siblings out into the field and learning and being out there working with the guys and ⁓ so growing up definitely had to do it. Spring break, Christmas break. There was no no no time off in those regards, even if we weren't always the the best workers on the team. We still had had to show up and do the best that it that we could at that point in time in our lives. speaker-1: Yeah, a hundred percent. ⁓ and then just so we could kinda track like size of the company at that time when you started to get into it more seriously, what size were you guys from like a revenue and employee perspective? Yeah. speaker-0: So ⁓ seven, I mean it's just me and my dad, right? And you're doing, you know, a couple, you know, ten, twenty, thirty thousand dollars, right? ⁓ it's and then it also happens to be right in the the downturn of the economy. ⁓ for people that are familiar with ⁓ those those ⁓ two thousand seven, six, seven, eight years. ⁓ it was it was pretty rough there for a little bit. And I remember my dad looking at and was like, Are we gonna make it? And ⁓ and at that same time he was transitioning out of ⁓ the construction company he he ⁓ he bought from my grandfather. And ⁓ and so 2008 started to pick up a little bit of momentum just based on relationships that him and I had in Northern California from my previous work life and then his ⁓ his relationships that he had. And then in 2009, we got a call. ⁓ I got a call from ⁓ from my executive at a company called Kiwit, and ⁓ which is one of the largest contractors in the world that that I had met years and years before. And ⁓ he said, Hey, ⁓ I got a job down here in LA. I need you to come down and do it. It's about six weeks worth of work. And I said, Okay. And I got down there in August first of two thousand nine and I met the night superintendent and he asked how many vacuum trucks they had. And I said, How many do you need? He goes, I need four. And I said, ⁓ no problem. I got you. And ⁓ problem was I only had one and I only had three employees at the time. And ⁓ man, I gotta figure this out. I gotta figure it out fast. And ⁓ that's how I got introduced to the rental industry for vacuum trucks and started calling rental companies and And then just covering their sticker up with mine and and ⁓ was on the was in the union and so it started calling the union halls and and loading up with labor. And luckily for me, the ⁓ because the economy was bad, there was a lot of available ⁓ people looking for work. And so I could call the union hall at that time and say, Hey, I need eight guys and ⁓ or eight people, and eight people would show up that that night for the night work and I could do you know, ⁓ new hire paperwork and get ⁓ going and get ⁓ trained and all those sort of things. And really quickly ⁓ that four trucks turned into eight and then eight became sixteen and sixteen became twenty four really quickly on that job. And ⁓ before I knew it, I was managing like a real significant amount of work. And ⁓ the nice thing about that job is it started as six weeks and it became six years. And ⁓ and so really it was one of those things where ⁓ it's just really catching lightning in a bottle and being the right right age at the and the right place at the right time. And ⁓ and really just have I think the the the key takeaway for me was and especially looking back on it in reverse. oftentimes I think about how I was a subcontractor and and being that I was, you know, an important sub, but they had a lot of subs on that job. And ⁓ I attended their foreman meetings, I attended their their safety meetings, and I and I wanted to become a partner with them. And I think that's something that we still try to push on our team today, even as the company's grown. You know, when we we peaked around 50, 60 employees on that job before Before we were all said and done, now we have 225 employees, right? And so I try and impress upon the team like we need to partner with our customers. It's not just a transaction, it's it's taking their problem and making it ours. And I think that was really a difference maker because a lot of my competitors, once they saw me on that job, started showing up on that job and trying to undercut me in pricing and all those kinds of things. And I get it, you know, it's business. They're just trying to put their trucks to work in a down economy as well. And it's you know, it is what it is. It's doggy dog. But I was lucky enough to have a lot of relationships and because I made people's problems my problem and helped them solve their problems, it really changed the trajectory I think of the company at that moment in time. speaker-1: Wow. Okay. Yeah, that's awesome. And so you've been you you transacted Aesop, what about a year and a half ago? speaker-0: Yeah, yeah. ⁓ March of twenty twenty five. speaker-1: Okay. And so t tell me about that. What was the lead up? Because you're you're a younger guy, right? So it's when I'm talking to contractors it it you're not old, let's let's put it that way. I'm not you know, I'm still young in my head, even though even though my nieces will will tell me anything but but ⁓ you know it just ⁓ I feel like a lot of people don't understand that Aesop is is a really good avenue for people that aren't necessarily looking to call it quits in the next couple of years. You know, so I'd I'd love to hear what, you know, what got Aesop on your radar? And then as a follow up to that, why did Aesop win out over, you know, maybe a strategic buyer or private equity? speaker-0: Yeah, ESOP ended on the radar or landed on the radar because we were trying to get creative on avenues to because as time went on, my dad and I are 20 years apart. And so the goals are different and and the given that he's in his 60s and I'm in my forties. And so it going back to like the COVID times, it was really his time to kind of take off and and go travel and be retired, right? And enjoy that and be grandpa and all those sort of things. And so then next became how. How do we do that? And ⁓ and so that's where Aesop kind of landed on the radar. But in my head, not knowing enough about ESOP, so they're little complex. and and they're also not like they're not really out there. People don't really talk about it. And then also ⁓ looking at it from my perspective, I was like, Well, I'm ⁓ I'm still young and and I and hungry and how do I how do we do this? And then how do I create liquidity and security for my dad at the same time? ⁓ because fortunately for us, the c like I said, the company grew really fast. And within that became the problem of how do you cut my dad a check and say, hey, see you later. You just can't do it, right? It's just not feasible. And then, you know, the company would be in trouble after that. And then so basically what what happened was is we started looking at different avenues. And about twenty fourteen, I started getting approached for ⁓ acquisition by private equity. ⁓ some of it was competitors, some of it was just private equity groups that were looking to enter the the infrastructure and the utility space. And ⁓ and I would always you know, I was I was humbled by it. I thought of like we started this company and then all of a sudden within, you know, seven, eight years, people are knocking on our door saying, Hey, let's buy it from you. And ⁓ I always thought that was neat and I I was really honored that people even cared or could even realize what we had going on. 'Cause I was living in the moment and so like stuck in my day to day and my week to week that somebody, you know, from a d different state or a different part of the country or a different country, sometimes Canada came down and ⁓ were interested in in buying what what I was doing. And ⁓ Those offers that they came and went and and ⁓ I those meetings came and happened and and it would happen about every six months. Somebody new would would knock on the door and I would always go to dinner with them and and sometimes there was multiple dinners and multiple meetings over the course of months and years. And ⁓ I it just never felt right. It never felt like yeah, this is it. Because I always looked at it like they have their own me. They don't they're probably not gonna need me. And and so what does that mean for me? And then ⁓ I started asking them like and and working with accounting on like what what's like this number sounds great on the surface, but what about taxes? And what what happens with control and and my ability, like I explained earlier about making a customer's problem my own. Sometimes, man, it wasn't always the most profitable thing. Sometimes I did things at cost in order to to help move the problem along for the bigger picture. And those sort of things aren't gonna happen when you sell out, you know, most likely. And you're gonna lose that control and that ability for me to call up and say, Yeah, I got I got rental trucks, and here you go. I got them right now and go pick them up and fly guys all over the country to go get them to take care of your customers' problems. And ⁓ I just felt like I would lose a lot of that. And then that you know, the guys that helped get me to where I'm at, I didn't can't do this on your own. And and so you look at it and you go, Hey, like they already have a me, they already have a COO or a safety person or somebody in the office doing payroll or a controller, all these different roles. And and so for me, just never felt right. It felt like they're gonna come in and they're just gonna buy my market and then they're gonna ask my team and maybe keep, you know, ten percent of us. And and ⁓ it just it just never set with me. It just never like settled well with me. And so then it was like, okay, how do I get creative? And I just kind of kicked the tires on a feasibility study for an ASOP and I was like, ⁓ I'm probably not gonna qualify, probably not big enough. And we'll we'll see, give us a goal. And ⁓ and maybe it'll be something we can do. And I got a call back from the Minke group and they were like, Yeah, you qualify. ⁓ what do you want to do? And I was like, Okay, and ⁓ let's talk this through and start negotiating this thing out. And it took us about 15 months, maybe a little less than that, to really put the whole program together and do the negotiations and all that kind stuff. But honestly, is it is it all it was it was a lot of work, but as it as it came out, and the more and more I learned about the eStop and and that that world. ⁓ it just felt right. It was one of those things where it just honestly felt like a win-win. It was an awesome opportunity for my dad to ⁓ sunset, create liquidity, still have a little bit of chips on the table because we didn't fully a hundred percent ESOP, we did 49%. And then it was an opportunity for us to really kind of put our money where our mouth is. Everybody says, you know, your your business is family or you know, we're all we all want to, you know, have an owner's mentality, but actually we were able to put shares in people's hands. And ⁓ and say here you go, this and and and give them an opportunity to to own something beyond just a four ⁓ one K and you know, and and beyond just their paycheck. It this is an opportunity for them to be an owner and create an opportunity for them to create some real wealth ⁓ post post retirement. speaker-1: Yeah, no, a hundred percent. And and before we started recording, I th you brought up a really good point that I hear all the time, right? There's so many misconceptions around who qualifies to go ESOP, right? From top line revenue to EBITDA. And there's, you know, depending on who you talk to, you get ten different answers. Yeah. And so for a point of reference, when you guys transact at top line revenue, if you're comfortable sharing, you know, whereabout were you, just so the audience could kind of get an idea. speaker-0: Top line revenue when we transa well, when we were looking at it would be in twenty four. Let's see, last year we did eighty four. The year before that we did like seventy five. Year before that we're in the sixty million range. Yeah. So we've got up about ten million a year over the last few years. speaker-1: That's awesome. And and so you you brought up you know, you put your money where your mouth is, and now your employees that help you build the company, right? Construction at the end of the day, your labor force is your business, right? ⁓ and and so you you built the company on their backs and you rewarded them now, but again, there's so much misinformation. What was the, you know, hey guys and gals, you you own the company now. What was the reaction? And and what does it look like from when you transacted to now a little bit over a year and a half later? speaker-0: Yeah, it Chuck, ⁓ it it it you get a mixed reaction, right? And I and it I've been kind of coached to understand that coming in that ⁓ 'cause I had asked that question to ⁓ the the Minke group and I said, Hey, just from your experience, like you you launch this thing, what happens? And they're like most of the time it's crickets. And ⁓ that was kind of our experience. And and the unique thing about NORCAL and the legacy utility group ⁓ is that is that we are we operate not like a traditional construction company's We we have small franchises, right? So you might have ten employees in LA and ten in San Diego. And they're they're spread out throughout California. And so it became one of those things where it was really hard to get everybody together without shutting down the company or saying, Hey, everybody come down on a Sunday or something, right? And hope to gosh, you know, everybody could make it home by Sunday night to go to work on Monday. It just became really hard to so we had to do it over teams. And ⁓ and it's hard to connect with a hundred fifty plus because there's fifty plus people in the in ⁓ in the ESOP. ⁓ over teams and and and explain everything to them and then you hand it over to the implement ⁓ implementer team and and they they're going over some high level financial stuff and it's just a little intimidating and I think everybody kind of looks at it and goes like how does this how do I how do I how does this impact me? So ⁓ when you initially when I initially launched it, it was like it was really quiet. And I had people in the t in the group that I knew that if I called on them, they either A had experience or B would ask questions. And so It went quiet for about 10 seconds, but I had my guys that have been with me for 10 plus years, and I'm like, I can ask him and say, hey, how are you feeling about this? And it's not gonna look like I'm picking on him. And they're gonna be honest with me because I called them out in front of everybody else in a good way and said, hey, you know, tell me about it. So it was able to create a little bit of conversation. The other thing that I think was key was two things that we did was we created an email that was just esop NorCal pipe at that time. And basically people could email and it went directly to me. And it it gave people an opportunity to ask their personal questions. Like, how like how much does this cost? Is this costing me anything? Like, what's going on? How is the business okay? Like, what what are we doing here? Where are you? Are you retiring? Like, what's going on? All these different things, right? And and this this myriad of questions. The other thing we did, and we're still like working through, is just continuing conversations. So I created an open calendar to where people can just plug in and and get a get a fifteen to thirty minute meeting with me, depending on what they need, and they can ask their own personal questions, just like you and I are talking right now. ⁓ so some people took advantage of that. The other one is every month we ⁓ we try and push out just a little bit of information. Cause I learned that some subliminal messaging, right? Like some small stuff in a newsletter, or like highlighting some people making some some decisions that that really positively impacted the ⁓ the ESOP, right? Maybe it's ⁓ maybe it's a drive for fuels a fuels a big thing for us right now because it's costing so much. And so we had we created an operational competition where people were trying to save fuel and or save money on fuel. And so, you know, highlighting the individuals that have the highest percentage of savings month over month, right? And then you say, hey, this helps, you know, profitability and it helps the bottom line, which helps us all with our share price and all those sort of things, and tie it, start tying things together. ⁓ the last thing we did was we created started creating committees. And we're right now we have like our just our e-soft committee. And which it makes up I think there's about six people on that. And then we have a culture committee and we have a safety committee. So start creating these different committees and they all somehow funnel back indirectly or directly into the ESOP conversations and start building things around that. Just keeping the conversation active, I think is really important. speaker-1: Yeah. No, and that's you know, it's tough when you have people all throughout the state and now you guys are are branching into other parts of the country. So it's it's quite the task to kind of wrangle the troops, so to speak. And and you mentioned so fifty sixty people are in the ESOP plan. You got a couple hundred people, so it sounds like you know, you got maybe a union workforce and maybe the union employees are outside of the ESOP. Is that correct? speaker-0: Yeah, it's where we had to we had to figure out where to draw that line. ⁓ and and then we just figured it was complex with the multiple unions and and ⁓ and we just felt like that was ⁓ probably the spot we had to had to draw it. It was tough. We'd I I would love to include everybody, but it just was one of those things with collective bargaining agreements and the way they change collec ⁓ you know, ⁓ all the time. ⁓ it just didn't seem like it was the right right place to to be included, unfortunately. I would love to include the team ⁓ that's out there in the field every day, but just wasn't wasn't on the cards. speaker-1: Yeah, it's tough. I mean, I'm I sit in Chicago. Chicago's a huge union contractor ⁓ area. And so I I think the unions are are coming around to it slowly but surely. But I mean you're how you transact it is is I would say more the norm, right? People that get the unions inside the ESOP, can it be done? Absolutely, but that's you know it's it's slow but surely coming along. What did that was that tough that piece of the the education to employees the saying, Hey, we got This team that's part of the ESOP and and this team that isn't, how did you kind of navigate that? speaker-0: Yeah, it was hard because I I the cool thing about the eStop community is that ⁓ as soon as we announced my LinkedIn got flooded with like contractors. ⁓ I have a pretty decent following on LinkedIn of people and and like I'm always adding people. I just think it's important to to network and talk people and you never know who's got like that's how you know we met. And ⁓ and and so I I got f like a lot of like ESOP companies and and some people within their companies at different at varying levels that reached out and some of them were local. And so there's there's a handful of local ESOP contractors here in Northern California. And I connected with one of their one of their teammates and I and I asked him, I was like, I asked him that that question. And I said, hey, where you where'd you guys draw the line and how was that, you know, received? And he said it was tough. It was tough on the guys that had been there a long time that were in the field. But what they used it for is they ⁓ they were careful how they worded things and saying instead of saying, hey, we're 100% eSOP and those sort things, because 100% of the employees don't own it, you know, there's a percentage of the field employees that don't. And so ⁓ they they start saying things like you know, employee owned and stuff like that, but also it gave them an incentive to have a guy that maybe was a foreman and been a foreman for 15 years to level up a little bit and say, hey, you know, what can I do to take this to the next level and maybe go from foreman to superintendent or superintendent to estimator project manager, whatever those things can be to get me into that e-stop if that's what he wants to do, right? And ⁓ and so I was like, okay, so that's that's kind of been our approach, is like, hey, you know. guys, we had to draw a line somewhere and and most of our guys are pretty understanding of that and they get it. And ⁓ and then we said, hey, you know, these are opportunities where like some of our guys that are operators are on the ESOP team because they were able to ⁓ move up into manager roles, right? And so it kind of gives them that, hey, like this is what happens if you move into those roles. There's nothing wrong with it. They those guys are well compensated in the union, sometimes a lot a lot better than a lot of people at the company. ⁓ there's definitely a lot of perks. The union's gr they've been great to us, but you know There's gotta be a line somewhere and that's just where we had to draw it and that's what we're using it for motivation. If guys really are interested in the ESOP then level up and, you know, we'll we'll get you into these management areas. speaker-1: Well, and I think, you know, especially in the heavy civil and adjacent space, you you always have that, right? Because before you went ESOP, you had the office staff that weren't card carrying union members. And so maybe they they felt left outright. And I'm sure you guys had a great four of one K and that and that type of thing, but there wasn't anything else for those types of employees. And so I I think The ESOP just a nice piece where the union guys and gals are being taken care of. Like you said, the pay scale's great, pensions are great, benefits are great. But now the other side of the house that didn't necessarily get those union benefits, now now they're getting the benefit of the ESOP. And then you could have people transition as well. So I think it's kind of the best of both worlds. speaker-0: Yeah, that that's that's ⁓ like I I kept telling everybody it a win win. I felt like it was a w in in the the odd case that you don't really see it very often, but I felt like it a win win. speaker-1: Yeah, that's that's awesome. And so when you transacted, Dave, were you guys how much of your, you know, business was bonded? Was bonding, you know, a big piece of it? Was it a small piece? What did that look like? speaker-0: ⁓ bonding is about a third of our business ⁓ bonded work. Nah, probably not a third. Trying to think. So our our lining division does about a third of the revenue of the overall b overall business, but their work that's bonded is probably probably ten percent. Probably ten percent of our work is bonded. speaker-1: Okay. So so not a big ⁓ you know, some some ⁓ companies that I've worked with have, you know, a hundred percent of their work, you know, they're doing a hundred million and it's all bonded, right? ⁓ you know, heavy highway work and that sort of thing. But still, I mean, ten percent's not nothing. Did you was there any surprises there when you went Aesop and the balance sheet kind of flipped a little bit? Was there any heartburn with the surety? When did you get involved with them? speaker-0: Yeah, so that's that's a great question, Chuck. So as you're doing this process, I it is so hard for me because I always try to be open and transparent and honest as much as possible. And I felt like I was keeping a secret for like thirteen months of just hiding and not being direct with anybody and like all shifty and all these things. And so I would meet with the bank or I'd meet with the bonding company and I couldn't I couldn't say anything. I was like, ⁓ everything's good. Please don't ask any more questions. You know what I mean? ⁓ and so it was one of those things where ⁓ luckily, you know, my dad and ⁓ this is where you know really pay dividends being that we're you know partners for so long and that he has so much history in the business, ⁓ we were able to we have a long term relationship there with the bonding company specifically. And ⁓ and so we're able to and my CFO had a long term relationship with our with the person who represents our bonding company. And so because we've done business for so long. It was a little easier and a little bit more ⁓ I think, open and trusting and and these sort of things to where you could have that conversation. I didn't include anybody until we got to like from a banking embodying perspective, until like the last like 30 to 45 days because I didn't know maybe maybe it's maybe 60 days, something like that, because I didn't I wanted to make sure things went through. I didn't want to create a fire alarm where there didn't need to be one. And so ⁓ and I didn't want it to I didn't know how long the ⁓ negotiation was gonna take with the final price and everything. And so I didn't want to have this thing linger for six, seven, eight months if it were gonna keep going this back and forth and trying to figure out what the final number was gonna land on. So I wanted to make sure that I had our ducks in a row and that we had like numbers and we had everything we could lay out in front of ⁓ like finishing out a a year, a fiscal year and all that sort of stuff. So we could really, really be well, well, well prepared for the conversation with bank and bonding. speaker-1: Sure. No, that makes sense. And I mean, it's a long term relationship. So as long as you've you got that continuity there in the surety industry, in the last five to seven years, I'd say they've come around to the the esop world a lot more. ⁓ I mean a third of all eesops are contractors. So there's ⁓ about sixty five hundred eesops in the country. You got a third of those are contractors and it's growing, right? ⁓ I'm I'm gonna do a LinkedIn post probably this week that Upwards, I mean you factor in some people are only 10, 20 percent, but there's close to 75 Aesop contractors on the ENR top 400. Yeah. So it's not it's not a fly by night ⁓ structure. It's there's some horsepower to it and and in a couple minutes we'll get into what you're doing ⁓ to kind of further your growth with the power of the ESOP. But ⁓ yeah, surety I think is a largely solved as long as it's explained and and you have ⁓ you know a service team that understands it. so now you you have, you know, you got legacy, you got guardian traffic solutions. Can you can you talk about kind of what what you're doing now with getting other entities under the NORCAL kind of you know parent company and and what the plan is there and how the ESOP is is helping or hindering you in that effort? speaker-0: Yeah, so you know, you alluded to Guardian. We also have JVAC and we have ECS, ⁓ which is a company we we purchased last year out of Texas. And ⁓ so basically when we transacted the ESOP, ⁓ I had wanted to expand outside of California and my dad wanted to retire. And so I I had already built ⁓ Guardian, which was a traffic control company I had built on the side, and I'd already built JVAC, which is an IBW vacuum truck company on the side. And ⁓ And I own those with a couple other partners. And ⁓ and so I was trying to build this thing up, and then ⁓ and ⁓ so the idea was is that NORCal has such a geographic name, and in order to get out of California, and there's nothing wrong with California, but just want to expand and do business outside of California, want to grow the business, I had to come up with an idea and a name and a holding company. So that's what we transacted as the e-stop is called the Legacy Utility Group. And so at the top of everything is legacy and then the individual companies all feed up into the ESOP. And so what we're doing is is we're we're we're going around and we've we've bought some of the companies that I or or buying some of the companies that I had already built and including Guardian and then we're hopefully going to transact JVAC this year. We went out and and ⁓ purchased ECS. ⁓ we vetted the guys over there at ECS for about two years, maybe about 18 months before and ⁓ the idea was we wanted to get into Texas. And we knew we couldn't take the California name and move over to Texas or people be We're not using those guys, you know, they're not they're not they don't really like us out there. And so it was like, Okay, let's let's figure out how to bring this in and make sure these guys check the boxes from core value perspective and reputation and all that kind of stuff. And and then we it was important to us that we found an owner that wanted to stay on, which we were able to do that as well with ⁓ with Michael over there at ECS. And ⁓ And so basically what we're trying to do is extend what I call the the smiley face and go from Sacramento to the Carolinas. And we're trying to be strategic and finding, you know, partners that are looking for either an exit strategy or what what was nice for us is that because I was an operator in the field, I kind of understand like their perspective a lot of times. I'm not not every time, but a lot of times I can understand it because I I grew up in the field, I grew up doing it. I can run the trucks, I'd I've done it. I've done the long days, I've done the long drives, I've done all those things. And ⁓ And so the idea was is that all those guys like like Michael at ECS are getting approached for acquisition from these from these private equity groups that they don't connect with. And it's same similar problem that I had. And so what I want to do is this is what we told East the team at ECS is that what we would like to do is bring in our infrastructure, the things we've already done, whether it's, you know, daily billing on an electronic tablet, the safety, you know, stuff that we can bring to the table, the fleet, the the banking, the bonding, the financing, all those things that ⁓ HR, all those things that maybe they don't want to do and they just want to build their business. And so we've kept the name, we've kept the team, and all we wanted to do was just take let's just take stuff off your plate and allow you to run. And then the nice thing with the eSOP is it creates an opportunity for people to still get a piece of ownership. So Michael's still gaining ownership even though he quote unquote sold ECS, using him as the example, he's now gaining ownership while he's at the at this new company, right? But and he's also gaining it gaining share ⁓ price you know, going up because there's other entities that are feeding it. So it's not just ECS. He now owns, you know, part of NORCAL and part of JVAC and part of EC ⁓ Guardian. And so all these different entities that we have, he can be a part of all of them. speaker-1: That's awesome. speaker-0: Positively impacted all of them to be honest. He's ⁓ just you know, his team has created opportunities for Guardian and created opportunities for JVAC. And so it's been kinda nice when you start finding the like people, you you can you can start bringing together resources and and hey, you know, teach me some of the things you did and I'll teach you some of the things I did and work together. It's been really nice. speaker-1: Right. Well you're you're combining forces, right? So you're you're getting all that that mind sharing and obviously a new market for you. You guys are bringing different perspective that they didn't have otherwise. and it's let's be honest, right? I mean going Aesop is it takes time and it takes capital. And and some people like the idea of an esop, but they don't they don't have the money or the wherewithal from a timing perspective to get all their ducks in a row. And so I think what you did You're extending that olive branch, giving them kind of the best of both worlds. They still get to be a part of the ESOP without maybe taking on the hassle of what what you and your father did, right? And and structuring it correctly. And you already are figuring it out so they don't have to take on the risk of maybe hiring the wrong advisor, forcing something, having the right ⁓ or the incorrect debt stack, right? You know, those types of things. So how did you I mean, did you know them or how did that deal come about and And w did they know anything about Aesops or was it something that you connected to them and then you educated them on the Aesop and they came around to the the concept? speaker-0: Yeah, no. So ECS specifically was introduced to our president, ⁓ Nick, through ⁓ an equ a person we buy equipment from. And ⁓ I I've had a relationship with this individual back to when I was renting trucks twenty-ish years ago. And and and so him and I have been friends for a long time and he obviously knows my president and stuff and and ⁓ we work a lot together and he kind of knows. some of the some of the inner workings and what we're trying to accomplish. And then ⁓ being that he's in the industry, he knew that that the guys at ECS didn't really have like ⁓ that transition plan and we're kind of like, okay, we've kind of topped out like what's next for us. How do we how do I get out of here? How do what do I do? Right. And then the selling point component like never just never made sense him. He had the same we mean our conversations were so similar when we when we met and talked. in terms of like why private equity just didn't make sense for him or I, you know, we just didn't connect. And ⁓ him and I did, but him and private equity and me and private equity just didn't connect. And ⁓ and so he ⁓ he was looking for something that made sense. And ⁓ he did have some experience or some ideas about Esop he he was familiar with it. And ⁓ and so he was able to wrap his head around it a lot quicker than maybe somebody just cold off the street who hadn't had any experience with it. And ⁓ But yeah, no, it was there was a long vetting process there and and spent some time on the golf course, spent some time at dinner, spent some time getting to know each other, from my perspective on teams just like this. ⁓ but also, you know, some of the team ⁓ leadership team also spent some time getting to know him and talking to him and and all sort of things, just to make sure that, you know, the alignment was there and what his long term goals were and and make sure they aligned and we could we could service that, right? Whether it was gonna be an exit strategy for him or it was gonna be a long term goal of him wanting to find somewhere to land and his team somewhere to land, which is ultimately what he ended up choosing. speaker-1: Right. And was it pretty similar to to getting your guys up to speed with his crew and letting them know, hey, now your your employee owners, was it was it pretty similar or was there any any ⁓ differences in that realm? speaker-0: Well, uniquely Michael is the head of our Aesop committee. ⁓ and so it's been nice because he's been able to then kind of be the ⁓ the voice to go out there and talk to people and explain to them and and really wrapped his head around it and been able to teach the team in Texas and you know, not just Texas, but everywhere else that we operate as well. ⁓ but yeah, it's it we've we've kind of had the same approach. We've all kind of been doing this together. So we transacted it with the ESOP March of twenty-five. We transacted ⁓ ECS December of twenty-five. So in reality, that was a lot in like a nine month period to do. And ⁓ they've kind of been living it with us. So stock price for us just came out where I just got the report this week. And so we'll have our first launch coming up and all sort of things. And so we're just trying to create some positive momentum and really, really fine-tuning it because we didn't really know what to expect for the last thirteen to fifteen months of what like an e was gonna look like. And ⁓ and so getting out there just kind of creating the same like wording and getting everything out into people in in front of them. And then the other thing that we did was we brought a lot of their team into California and ⁓ from ⁓ all of our all of our different companies all together into one room and ⁓ and from a management perspective and brought everybody together for a few days and really went over where we're at, what's going on, and then where we're going. And that was really important and I think we got a lot of positive feedback from that was really just Finally getting some FaceTime, everybody, you know, in the same room and really just shut the doors and let's talk. Let's talk through the good. Let's talk through the bad. Let's talk through what you don't understand. And let's try and work and go forward together. And it's been like it 'cause it created a lot of confusion. You when you tr transact in Aesop, you have some changes in in leadership, and then on top of it you have ⁓ a new company, right? And then we bring in Guardian. We brought in Guardian like two months later, and it's like we're doing all these acquisitions and all these different locations, and then we opened an office this year in Texas and Everybody's like, what is going on? Like it's happening so fast. But ⁓ trying to get people to like, you know, like, hey, let's all get together in a room and let's just all talk. And and you know, everybody bring your concerns and we put a survey out ahead of time and you know, bring bring your bring your voice your concerns. Let's talk about it. And we just laid ⁓ out and went through as much as we could and some stuff had to had to get tabled for another day. And but we tried to get through everything we could in forty eight hours and and ⁓ and then just the the crux of that really ends up being the follow up, as long as you're following up and having Continual conversations, it really creates the trust and the positive momentum so that people believe in what we're doing. speaker-1: Right. And so that I mean that's that first acquisition's pretty quick, right? From when you transacted. Yeah. And you're in a capital intensive business. So how did you manage? You have a new debt stack that you didn't have pre ESOP. Then you had to pony up some money to make an acquisition. You're growing, right? I'm sure you were still hiring people and getting new equipment and so on and so forth. So how did you how did you manage that? And was it you know, is your CFO now bald? Like what? What did that look like? How did you guys manage that? Because that that's a lot. speaker-0: It is. It is a lot. You know, it's ⁓ you you have to be intentional and you have to be smart with your decisions. ⁓ we leaned on our vendors. We ⁓ we're able ⁓ the the big thing that we have right now is a really good banking relationship. It's been really, really helpful. ⁓ we have a team of people that we work with at a at Avid Bank that have been just fantastic. They're familiar with ESOPs and ⁓ and they have been they've been great to work with. And they've really been helpful in helping us understand. They've been We've been honest and open and ⁓ it's it's been it's been it's been a good team and it's really, really important that for me, for growing the business, that we surround ourselves with the right team and been lucky enough to do that with them. speaker-1: A hundred percent. That that's awesome. And you guys are, you know, an EOS contractor. And so I'd I'd like for you to kind of share you were EOS prior to doing the the ESOP, correct? speaker-0: Yeah, we were EOS we've been EOS for now two years. speaker-1: Okay. So still I mean, geez, Dave, you've taken on I mean, when you go, you go apparently. You just go full man. So so you were doing EOS for what roughly six months maybe before you went ESOP. So how did do you feel like the structure of EOS and the intentionality and and so forth helped you with the ESOP transaction and transition? speaker-0: Yeah, Chuck. US has been super helpful. ⁓ and I think people that are founders ⁓ or family businesses can relate. ⁓ a lot of times I found me and my dad were working on the same things just differently. And ⁓ or maybe ⁓ because I was in Southern California for a long time for ten years and he was in north, it almost felt like two different businesses and there was no there was no connective tissue. And ⁓ I think EOS really really being implemented and we really implemented ⁓ after my dad retired. And ⁓ it wasn't it was it just was by design it wasn't by design. It just happened to be that way. but I you know the ⁓ the implementation of VOS was really, really beneficial because what it allowed us to do is kind of divide and conquer. And I know that sounds silly, but it really put it in your face. It was like, you know, first you sit down and you you you make these goals and you make the, you know, ⁓ all these things that you want to do in the business and and don't torpedo anything. Everything is on the table. You can say whatever you want. And ⁓ and so you bring your leadership team together and you talk about, you know, the right people, right seats, and you talk about your long term goals, your one, three, five, ten year goals. And you start laying those things out. And then you you start going, okay, how am I going to achieve there? And you start bringing it in, bringing it in and bringing it in. And then you find that like these are my one year goals. And then your one year goals lead into your three year goal. And how do they lead in, right? So you start taking things and really it allowed us to really create a lot of structure that we we didn hadn't had before, just being frank with you. It was just really, really, ⁓ really is the family run business and and my dad and I just put it together without a wit a lot of sophistication. It was just a willingness to work. And and so then it became like, okay, now we have a hundred and something employees and at the time when we when we East our EOS and it was like, you know, we have a lot of mouths to feed and we gotta make sure this thing's around and and then what does this look like post post ⁓ my dad and how's this how's this gonna work? You know, what's the structure And all those sort of things and how do we get a little bit better structure and organization so that people feel comfortable where they're working and they know where they're going and they know what this business looks like. Cause now there's new leadership in charge with me being there that even though people knew me, they still didn't know me from a from a global perspective of like, Hey, he's running the business, right? And and now everybody's accountable to me versus ⁓ my old man when he was here. speaker-1: And how was the the Texas acquisition did they run on EOS or no? speaker-0: Yeah, everybody does. Our all of our meetings ⁓ they didn't before, they do now, I should say. ⁓ all of our meetings, you know, all the way top down are on the same cadence. They all look similar. So if you attended a leadership meeting or you turned it a payroll meeting or a different company guardians meeting, they would should all look very similar. The cadence should be the same. ⁓ even though like the goals or the ⁓ the data might be different. ⁓ everything will pretty much look the same. speaker-1: Sure. Yeah, no, that that's ⁓ I was curious if they were you know, if it happened to be the previous owner was running on EOS and you just kinda transitioned it or speaker-0: That would have been nice, but no, ⁓ he wasn't, but he's he's really ⁓ owned it though, his his partner, he's really, really taken on taken it on. So the whole team has to be honest with you. We've done we've got a good implementer. Our implementer happens to be on our board now. ⁓ so that's been helpful for for us as well. But ⁓ it's been nice because what we've used is we've used our implementer and ⁓ added EOS training to our management team. So now when you become a manager at our team, you have to go spend a day or two with speaker-1: Okay. speaker-0: our implementer in a group setting. So we might bring all the directors, for example, and say, hey, eight or ten guys are gonna be here, eight or ten people are gonna be here and they're gonna sit at the table and you're gonna go through a full day with our implementer and you're gonna go over how these meetings, these L these L ten meetings should look and how how these things are ran and the cadence and all that kind stuff. And and then they have re we have refresher courses every quarter and stuff like that. So speaker-1: Got it. No, it's like we were talking before I hit record. I there's just EOS is growing so much in the contractor space, and then I'm seeing it in the ESOP world contractor otherwise. And I I just think there's so much similarity with the structure and having the board and governance and and a mission and a and a plan, you know, a five, ten, fifteen year plan, ⁓ that I think it's a match made in heaven for the the people that have the wherewithal to take it on because it's a big lift. speaker-0: Yeah, the nice thing that EOS has created for us too is you can't really hide from it. You you really I mean, everything's right there. And ⁓ so, you know, your your individual rocks as we call ⁓ which are your, you know, long term to dos and are right there in your face. And and you have to report weekly if you're doing ⁓ or not. And you know, if you're on track or you're off track and and your deadline's coming and you know, it it allows you to and there's a sense of Pride when you complete your s your tasks. And it feels good to, you know, when you're sitting in a room of your your peers and and you, you know, your stuff is done and you're checking your stuff off the box and you can move on to your next the next thing that you gotta do. ⁓ so it's been nice. It's it's created a lot of visibility. ⁓ the nice thing for us is that it created transparency and visibility for me. So I can see down farther if I really want to get in the weeds to try not to, ⁓ but I can drill down into into you know, down to other people's meetings if I want. I can drill down into other people, you know, other groups, ⁓ data and all those sort of things if I want to. I I I don't but I usually 'cause it all ties in and bubbles up, right? So you kinda know and then we have a team of people that'll that'll highlight the things that need to be brought to the attention and stuff like that. But it really is a it really has been a a transformative tool for our company. speaker-1: And how so I ⁓ you know, I I found out about you from the the Menke podcast and and those guys are just great advisors and ⁓ their podcast is great. Hopefully hopefully I could grow this to half as good as is what they're doing. But you know, if I remember from your episode correctly, you did kind of a ten year note, you're hoping to get it paid off in six or seven years. speaker-0: Yeah, it's the goal. I mean it's aggressive. We'll see. ⁓ you know, it's ⁓ it's the goal, it's hopeful. ⁓ but we'll see. It's tough because, you know, you have all these unforeseen things, you know, whether it's fuel prices, which has negatively impacted the bottom line for us this year a lot, ⁓ really impacts our business a lot 'cause we have big trucks and they run a lot of fuel every day. ⁓ so those are things that's all money that you know you don't budget for because you don't know that the gap the fuel ⁓ the the price of fuel is gonna double, you know. Yeah. So those things you just it's cash gone. ⁓ but yeah, the goal is to aggressively pay that down and then hopefully transact again in the next ten to twelve years to the remaining thirty one percent. speaker-1: Well, and it's ⁓ can you speak to ⁓ one of the biggest benefits to to Aesop is the the tax free income on the the ESOP portion, right? So is that I'm assuming that's helped substantially on the debt service as well as maybe enabling you to make those acquisitions as well as maybe get more creative on the the hiring. I I'd like to drill in on on what that looks like for you guys. speaker-0: Yeah, no, the the tax component was a large was a large component even to get the ESOP deal done. ⁓ the way my dad smartly viewed it was that it was ⁓ basically double because he was not having to pay taxes on a portion of the money, right? And so the way he was looking at it was if they gave him five million dollars cash, that was essentially ten million dollars in value, right? And ⁓ so no, the tax savings has definitely been nice. ⁓ and then it it has given us some flexibility in order to kind of figure out financially and I have a really strong ⁓ CFO and and a and a an accounting team that that's done really good job of managing the money and making sure that, you know, hey, we're we're accruing money where we need to to pay these the the you know, whether it's the ESOP note and all these sort of things or we're we're accruing money for our CapEx 'cause you have to be a lot more structured. Like we used to buy equipment, ⁓ a little bit sporadically, my dad and I did, ⁓ especially when we were starting and ⁓ And now you have to be a little more structured with CapEx and things like that. You have to really, really plan it out and it's gotta run through the board and it's gotta, you know, you've gotta make sure you've you've allocated the funds correctly so that you can execute that from a tax perspective and have it make s all make sense. And and ⁓ so yeah, it's it's been it's definitely different. It's but it's it's all good. It's it's part of it. If you really wanna grow, you g you gotta you gotta change it up. You can't do the same thing every time. speaker-1: A hundred percent. On the recruiting front, has has the eSOP kind of caught its legs? Has it has it made a material difference in terms of, you know, fighting the good fight, the labor market? I I feel like that's always the top, if not the top issue, second issue of of plaguing the you know, construction companies. ⁓ so has has the eSop helped you kind of get a competitive edge compared to your peers? speaker-0: Yeah, I think so. ⁓ I you know, we've had people that have been approached by on our team that have been asked to leave, right? And ⁓ and they ⁓ they've they've said that they like to stay 'cause they, you know, they're part owner now and they really want to see this thing through. And then on the flip side, you know, we've used it to be strategic and hiring and and talking. We're still building out more material to ⁓ to really push it. So we built out some videos that are part of the new hire process and and recruiting videos and things like that. And then ⁓ we've built out some material as well that ⁓ that that we've used for for a ⁓ for our you know, indeed ads and things like that, ⁓ letting people know that hey, you know, you can be an owner ⁓ where where you work and and why that why that matters. ⁓ the next thing I think I'd like to see is is figure out, you know, drill drill that down a little bit and show ⁓ like, you know, the the money earned, right? Is it doesn't cost ⁓ anything. They're not they're not paying for it directly. ⁓ And so the business, you know, hey, leaving for five dollars an hour or leaving for an extra five thousand dollars in in reality might sound great for a year, but the reality is is that you're this is what you're giving up, right? And having the helping people wrap their head around it. I think getting our share price out and getting the committees built and those sort of things will start to ⁓ allow that to kind of snowball in there and then build that stuff out and have that stuff for everybody to see. So once you do it once, it just really starts to repeat. It's becomes easily repeatable, right? And you start showing people those things and becomes one of those things where everybody sees it and po create positive momentum out of it. speaker-1: Yeah, a hundred percent. I I think it's you hit the nail on the head, right? People, especially on the younger side, will will jump shit for, you know, a couple bucks an hour, what have you. But if you look at especially if they're younger, the power of the ESOP twenty-five, thirty years down the road, it's like you're gonna have a few million bucks probably, if not more. And then if you divide that by thirty years, that's gonna come out way ahead of that five bucks extra an hour. And so I think ⁓ you know, the communication's hard though. I know when I was twenty. someone threw extra money at me. I probably wasn't thinking, ⁓ what what am I gonna do in retirement? But yeah, it is it's it's just it's such a good competitive advantage, especially in the construction space. ⁓ the board, what what is the board makeup and you know, how'd you set it up to to start and has it changed the year and a half in? speaker-0: Yeah, I agree. Yeah, so the board right now is ⁓ is me, my dad, being that we're fifty-one percent owners, and then our chairman of the board is our Aesop ⁓ our EOS implementer. ⁓ his name's Craig Hetrick. ⁓ right now that's the dynamic. We are adding a fourth board member. We have until March of twenty twenty seven. Sorry, I was looking at the calendar. ⁓ March of twenty twenty seven to add a fourth board member. That's a completely independent. Craig doesn't qualify because he we works with us as a consultant as well. ⁓ but Craig is, you know, a former CEO and and so he brings a lot of different experience. ⁓ he's not a he's not a construction guy. He's, you know, a little different, different background. ⁓ I think he's in food service background. And ⁓ and so he's got a different perspective and ⁓ and he also works with a lot of businesses and leadership coaching and things like that. So ⁓ appreciate his perspective. And then we're just trying to find a fourth member that has a little different background and going through some interview processes that we've interviewed a handful of candidates and still working through that stuff to try and find the right fit. ⁓ 'cause we'd we'd really like to find a long term solution there and have it be a a good fit. speaker-1: Sure. No, that makes sense. Well then as we kind of wrap this up, Dave, where what what's the next 10 years look like? And i if you had a crystal ball, you know, you you mentioned the smiley face, kind of what what do you want the makeup to be for legacy as as you look out? speaker-0: Yeah, ten years. ⁓ I I I really for me, ten years, I really want to build that out, get on the get get from coast to coast. I think, you know, like you said, ⁓ I'd really like to expand our footprint, expand our ⁓ our our team, obviously. I'd love us to have a little bit more in terms of coaching and leadership coaching and things like that, allowing people to kind of, you know, see what their career trajectory looks like, which we're building out. We have ⁓ we're hiring a CPO right now, which is a chief people officer. ⁓ like to see some some a little bit more long term stuff ⁓ built out. And ⁓ yeah, I'd really love to see the the Aesop note paid down or paid off ⁓ in that amount of time, which would allow us to then be a little more ⁓ financial flexibility and ⁓ hopefully go create some more acquisitions and and continue to grow. Maybe that's up the east coast and or maybe it's in the h higher up in the Midwest or Northwest. speaker-1: Hey, I I'd love to have you in Chicago. There's a lot of good lot of good contractors that fit that silver tsunami bill. So they they gotta figure something out in the next five, ten years. So to that point, Dave, is there do you want to stay for now at least kind of in your core contempency? Or if there was, let's say, a really good GC that listens to this and says, you know what, I like Dave, I like his energy, I like that he takes care of his people. He's structured, he's a smart guy, he's got a lot left in the tank. You know, maybe I would be interested in in going to Aesop, but not myself, but selling to someone like Dave. Is that something you'd entertain or do you want to kind of stay in in the more, you know, the the core contempency of ⁓ companies you've created so far? speaker-0: I mean, we're open to all ideas. I try to I try and be open and open minded and flexible and see if anything's a fit. ⁓ our biggest thing is the core values. We just gotta all align in core values and goals and those sorts of things, right? So you check the box on the on the teamwork and the integrity and the and and thinking big, right? And I really want people to ⁓ to subscribe to those things. And that's where we really wanna find ⁓ teams that are a fit. The other thing is is really gonna be ⁓ you know, long term goals and finding people that that their long term goals line up with ours and they go, Hey, you know, we want to grow too. Maybe we just they reached a a limit with a can ⁓ capital and they really don't know how to how to grow beyond that, right? And ⁓ well but overall if there's, you know, other products or other services, as long as they're, you know, customer service focused and and they really want to take advantage of of really being a partner for their customers, I You never know. I I I would never I would I would have sat here twenty years ago and not told you I I'd be sitting here. Twenty twenty years later. ⁓ I didn't think that ⁓ you know, we named the company NorCal because we never thought we'd leave Northern California and I'm over here talking to you about going na ⁓ nationwide, right? So I ⁓ I try not to be a closed door to anything. speaker-1: Yeah. That's awesome. And if someone's thinking about going ESOP, what what's the biggest reason you would say like pro and con, right? So why should they do it? And then to play devil's advocate, why shouldn't they do it in your opinion? speaker-0: Yeah, you you should definitely do the eSop if you're looking to transition, either, you know, for a succession plan, ⁓ you you have a team in place that you think can carry it. and ⁓ and also the the ⁓ the tax advantages are great. But ⁓ but the ⁓ you shouldn't do it if you just wanna you just wanna ride off in the sunset. If you're done and and you don't want to be a part of it anymore, you don't wanna help out, you don't wanna be on board, you don't you don't want anything like that, you just wanna ride off, then it's probably not a fit for you. speaker-1: Sure. All right. And if someone ⁓ wants to connect with you, what's the best way to to connect with you, Dave? speaker-0: Yeah, you can get me on LinkedIn ⁓ or you can go to our website. It's legacyutility group dot com ⁓ or norcalpipe dot com. You can find me on either one of those. speaker-1: Awesome. Well, I appreciate your time. This was great. speaker-0: Thank you, Jock. I appreciate your time. speaker-1: All right. Thanks for listening to the Construction Aesop Collective. If this was useful, follow the show and share it with a colleague. Join the conversation with me, Chuck Mazzanti, on LinkedIn and find all episodes at constructionesopcollective.com. Until next time, keep building ownership one conversation at a time.