Willmeng Construction, headquartered in Phoenix, is now the second-largest employee-owned general contractor based in the state.

Phoenix-based Willmeng Construction, one of the largest privately held commercial general contractors in Arizona, has become a 100% employee-owned firm, the builder announced last month.

With the launch of its employee stock ownership plan(ESOP), Willmeng, with more than 350 employees, became the second-largest employee-owned general contractor based in Arizona, according to the release.

The decision to convert to an ESOP was made even though multiple construction companies have indicated interest in a potential merger or acquisition, CEO James Murphy said in the release. “We have every interest in continuing to partner with these outstanding firms, but it was important to us to maintain our culture and preserve our offering to our clients by continuing to invest in our people,” Murphy said.

ESOPs can be attractive to medium- or large-sized businesses with stable operating cash flows and low debt looking to move forward with an ownership transition, said Brad Werner, the leader of Milwaukee-based accounting firm Wipfli’s construction and real estate practice.

ESOPs often involve a company taking on debt to buy out a departing owner in retirement. Employees then assume collective ownership via shares in the company, but also inherit the debt used to finance the transaction.

The ESOP structure is popular among construction companies as a way to have a smooth succession plan while allowing owners to exit with an end-of-career windfall. Eight of the top 20 spots on the National Center for Employee Ownership’s list are AEC firms, including:

• Omaha, Nebraska-based HDR.
• Overland Park, Kansas-based Black & Veatch.
• Kansas City, Missouri-based Burns & McDonnell Engineering.
• San Jose, California-based Rosendin Electric.

Werner said ESOPs give long-time owners partial or full liquidity via a relatively simple structure.

“I think there’s a legacy preservation element of it,” Werner told Construction Dive.

However, Werner also said that the creation of an ESOP can add a significant liability on a company’s books, alongside the high administrative costs of running it in perpetuity.

“All of a sudden, you’re adding debt to a balance sheet,” Werner said.