The Path Less Taken

Bradley K. Feldman, JD, CLU | July 28, 2017

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Steve Teper had always dreamed of owning the company he worked for, but never had a plan of how that would become a reality. Then, at a charity event in the summer of 2013, we ran into each other, and since we were former softball teammates, we naturally struck up a conversation.

Teper, CFO of Commercial Contracting Corp. in Auburn Hills, explained there was no obvious succession plan in place, and he was looking for creative ideas. The challenge was that Teper and his three col­leagues were capable of running the com­pany long term, and were able to contrib­ute significant capital, but they lacked the additional resources needed to pay a lump sum purchase price to the current owner, William Pettibone Jr.

The business offers a broad range of ser­vices, including general contracting, in­dustrial equipment installation, and con­struction and facilities management. The company was founded in 1942 as a division of Commerical Carriers Corp. Don Beve­ridge and William Pettibone Sr. purchased the division in 1946, and in 1961, Petti­bone Sr. bought out Beveridge and became sole owner. After his passing, William Pet­tibone Jr. and his brother, Michael, each assumed 50 percent ownership. In 2007, Pettibone bought out his brother and be­came sole owner.

Teper joined the company in 1997. He and his colleagues, Stephen Fragnoli, CEO, who joined in 1999, Bradford Kimmel, executive vice president-construction division, who joined in 1999, and Joel Le­wandowski, executive vice president-in­stallation division, who joined in 1995, were all fiercely loyal to Pettibone, and love their roles at CCC. They all wanted to suc­ceed the company’s ownership.

The issue faced by them, and numerous other closely held companies, was not a unique one. However, succession plans (or exit strategies) are challenging to imple­ment for a variety of reasons.

Some multi-generational companies may no longer have family members to take over. Oftentimes, the current partners are at odds over when to sell, how to sell, the sale price, and whether to retire or contin­ue working under new ownership.

And probably, the most difficult situation of all is when an owner passes away, and the heirs suddenly take over the company that has no plan in place. Fortunately, there are solutions to these complex issues.

In the case of CCC, Jordan Smith, one of my partners at Schechter Wealth, and I met with Teper and Fragnoli over the en­suing months to learn about their goals and objectives, as well as the legal struc­ture of their entity, potential licensing and employee benefit issues that would arise as a result of an acquisition, and the sales tax implications to CCC and Pettibone.

Smith, an estate and tax planning attorney by training, and I, also an attorney, began devis­ing a proposal for CCC, which included cre­ating an LLC to purchase non-voting stock, executing an interest only note by the new owners, and purchasing a life insurance pol­icy as security for the debt. Life insurance, when structured appropriately, can be an incredibly powerful problem-solving tool.

The key components of our proposal of­fered security for Pettibone through a uniquely funded life insurance poli­cy that Schechter designed to only re­quire two premiums in the first 15 years.

Teper and his partners, as well as Pettibone, were intrigued with the proposal. Discus­sions continued with the help of CCC’s team of tax advisers at PwC in Detroit, and lawyers at Couzens, Lansky, Fealk, Ellis, Roeder, and Lanzar in Farmington Hills. Multiple issues were carefully considered, researched, dis­cussed, and resolved to the satisfaction of the parties. In December, the deal finally closed.

There are a few key lessons of the CCC story. First, it is never too early to start suc­cession planning. The new owners of CCC and Pettibone had been in discussions with their advisers for months before Teper and I reconnected. The lack of either external or internal pressures to create a sale helped pave the way for one that was in the best interest of all involved.

Second, it is important to work with advis­ers who are experts at negotiating and imple­menting multimillion-dollar transactions. In addition, when experts in law, tax, insurance, etc., are all involved, they should have an open line of communication throughout the entire transaction so that all issues are iden­tified and resolved timely. CCC’s advisers all stayed in close contact from start to finish.

Finally, have an open mind to a creative and potentially nontraditional financial strategy. For CCC, it was a uniquely designed and competitively priced life insurance policy that became the game-changing.

Brad Feldman
Written by:

Bradley K. Feldman, JD, CLU

Wealth Advisor

Brad Feldman joined Schechter Wealth as a Wealth Advisor in 2007. He came to the firm after working as real estate and corporate litigator at Jackier Gould, PC in Bloomfield Hills, Michigan, and as Vice President of TRG Capital Group, LLC in Farmington Hills, Michigan, where he began his career as a financial advisor.