Case Study: AE Electrical Solutions, Inc.
Published August 5, 2021
A case study detailing AE Electrical Solutions’ journey to employee ownership through an ESOP.
MCM Begins Working with Art’s Electric, Inc.
AE Electrical Solutions (“AE”), previously called Art’s Electric, Inc. is an electric solutions company providing industrial, commercial, residential, systems, low voltage and earth moving services to clients in the Central Kentucky area. As the original owner of AE, Art Montfort owned half the company and had sold the other half to his two business partners at a discounted rate. The AE leadership team focused on developing and maintaining longstanding relationships with clients and upholding a commitment to quality electric services.
MCM Begins Working with Art’s Electric, Inc.
MCM CPAs & Advisors (“MCM”) began working with Art Montfort of Art’s Electric, Inc. in 1995, providing tax and strategic business advisory services. MCM collaborated with the three AE owners, identifying opportunities for tax savings and business growth. A major opportunity for tax savings became available in changing AE’s classification from a C-corporation to an S-corporation.
In 1995, Art’s Electric, Inc. was worth around $8M, and after three years working with MCM, the company’s value had increased to $10M. After obtaining S-corporation tax status, AE grew consistently each year apart from 2001 and 2009 because of the respective .com economic collapse and real estate market crash
Retirement decisions & ESOP transition
In 2011, Art and the other AE owners sought out potential transition plans. The MCM advisors assisted AE in looking at third-party buyers as part of the owners’ succession plan and discussed the possibility of transitioning the company to an employee stock ownership plan (ESOP). The ESOP was an opportunity for Art’s Electric, Inc. to distribute ownership of the company to employees through an annual trust. Art and the leadership team were very close to their employees and interested in a retirement plan that would benefit their employees who were committed to a high level of service and business integrity, ensuring AE’s reputation and client service in the Central Kentucky region.
To transition to an ESOP, MCM advised that Art’s Electric, Inc. change their tax status from an S-corporation back to a C-corporation, which would provide opportunities for tax savings as an ESOP and would allow the company to be sold for a lower price since taxes would not have to be paid on the deferred transaction.
In 2014, Art’s Electric, Inc. was sold to the ESOP and the company has been 100% employee-owned ever since. The new employee ownership group rebranded the company from Art’s Electric, Inc. to AE Electrical Solutions and to this day the employee ownership group honors the legacy of their previous ownership group with unmatched levels of customer service and quality electric services.
About MCM’s Construction Services Team
The MCM Construction Services Team is a group of dedicated specialists with the in-depth knowledge necessary to assist in the growth and profitability objectives of construction companies of all sizes. We offer relevant expertise in retirement plan audits and administration, advisory services in human resources and information technology, and succession and strategic planning. MCM’s knowledge of the construction industry allows us to assist business owners, contractors and suppliers in obtaining up-to-date and accurate financial information. We can also act as a business liaison to banks and bonding industries, and proactively inform clients of new tax strategies to minimize tax liability.
Click here to learn more about MCM’s Construction Services and reach out to a member of the team.
About MCM’s ESOP Advising Services
MCM’s ESOP Advising team works with business owners like Art who are interested in a business transition plan that will reward employees and offer tax advantages in their succession. The MCM team assists owners in determining if an ESOP is right for them, planning for the transaction, hiring the right team, and finalizing the deal terms. With AE, MCM’s ESOP advisors worked closely with the team to understand their goals, estimate the value of the business, and use a holistic approach to find proactive solutions for their successful business succession plan.
Click here to learn more about MCM’s Employee Stock Ownership Plan services and reach out to a member of the ESOP team.