The steel service center and related businesses in Hamilton, Ohio, transitioned to the next phase of existence under Employee Stock Ownership Plan.Afew years back, Frank Pfirman recognized the time was drawing near for him to step away from the company he founded. He just didn’t know what his exit strategy was going to look like.
A former salesman with Thompson and SOS in Hamilton, Ohio, Pfirman set out on his own in his hometown in 1987, creating Matandy Steel & Metal Products. The company has since grown to welcome two other businesses, Linrose Manufacturing and Lamp Metal Trusses.
It was a history to be proud of, and one he and wife Joanne weren’t keen on seeing disappear, a distinct possibility depending on the option he chose when he eventually sold his interest. He also had family to think about, longtime staff members who felt like sons and daughters, and two actual sons serving in executive positions with the organization.
And then he found the solution that perfectly met his needs – an Employee Stock Ownership Plan. An ESOP would give Pfirman the financial cash out his 35 years of hard work earned him, while still protecting the enterprise for decades to come.
“I looked at the options. You had a competitor who would have loved to have bought us. You have venture capitalists who are just in it to make money and do not care about the people or the process or anything. ESOP was something I hadn’t even considered. I had heard about it, but I had no idea how you go about it,” Pfirman says.
But he checked out the option, first soliciting advice from his outside CPA and attorney. Then, Matandy executives sought the input from companies in other businesses that had taken the ESOP route. What he found surprised him, pleasantly so.
“Obviously, money was important, but it wasn’t the main reason to take an ESOP. It became a very attractive alternative when I learned more and more about it,” he says.
His initial fear was the employees would not be able to come up with the funds themselves, though that isn’t actually a roadblock. In the model, the ESOP can take out a loan and the company contributes money so the ESOP trust pays off the loan. Employees are given shares of the company itself.
The process itself took a long time, but that tends to be true with any kind of succession plan. Once initiated, it was very similar to a traditional sale.
“The process is still ongoing, and it will be for quite some time, but I think the initial result is favorable. It gave me exactly what I wanted. They don’t frisk me when I walk in the door,” he jokes.
At the same time, he considers himself fully removed from the business he built. “I could have been on the board, but I chose not to be. I knew if I was, I would get too involved.”
For the employees left at Matandy, it’s largely business as usual. By keeping the existing structure in place, there’s very little difference between the Pfirman ownership and the ESOP, which was the hope all along.
The day to day has not changed since the transfer, either on the warehouse floor or in the sales offices. But those employees will begin to see the effects of the ESOP, and the fruits of their labor. “Every year they’ll get a stock certificate,” says Andy Schuster. “I think the second one will be even more exciting because they’ll see the growth.”
In theory, that stake will lead to even greater productivity from the 112-person staff at Matandy than they were already delivering. “When they see the benefit of ownership, it will encourage them to put in the extra effort. If they see someone dogging it, they will think, ‘hey you’re costing me money.’ It should be a good retention tool. It should be a good hiring tool,” Schuster says.
“If you’re here for a long time, you can have significant value.”
The one person most immediately affected by the sale is Schuster. Long Frank Pfirman’s righthand man at the company, Schuster is now fully in charge as the president and CEO. He is also part of a five-person board, the major shift in leadership structure with the creation of the ESOP.
“The only person it changed for was me,” Schuster says of the sale. “Prior to that I’d just have to go to him. Now I have to go to the board.”
The board is a five-person entity, populated by Schuster and Pfirman’s two sons, Matt and Andy. Matt Pfirman is the president of Linrose Metal Framing and Andy Pfirman serves in the same role with Lamp Metal Trusses. Two outside directors complete the board. Both of the outside directors are trusted Hamilton business leaders hand-picked by Frank Pfirman due to their understanding of the company and its role in the community.
Ultimately, Schuster says, the company would like to have a complete outside board to offer oversight as Matandy embarks on new growth projects. And it’s almost certain the next phase of expansion will differ materially from the former undertakings.
Pfirman founded the service center business in 1987, opening up a secondary house primarily geared toward the construction market. Organic growth led to the erection of the current building in 1997, with another expansion 11 years later.
In 2011, an existing customer, a Nashville, Tenn.-based framing company, was experiencing financial difficulties. Rather than let the company go under, Frank Pfirman worked out a deal to acquire the business, ultimately shifting operations to Hamilton and renaming it Linrose after his daughter and granddaughter. (Similarly, Matandy comes from combining his sons’ names.)
“Frank is always looking to help, making sure people don’t lose their jobs,” Schuster says.
Obviously, the downstream purchase was a natural fit. “Our finished goods become their raw materials,” Schuster says. “They run it through and make studs.”
The same story unfolded the following year with the company now known as Lamp, which is an entirely different kind of business than Matandy. Lamp does not have its own facility. Rather it builds its trusses on the worksite using metal often sourced via the vertical chain of Matandy and Linrose. Most of its work is done in the Southeast.
While Matandy Steel will continue to look at growth opportunities, subsequent ones are likely to be more offensive than the defensive postures taken with Linrose and Lamp. But there’s no question what kind of business will be targeted.
“The next company is one that uses steel that we can provide and add value to. With our team and the processes we have, once we get in somewhere we can add value pretty quickly,” Schuster says. “Hopefully we’ll continue the growth, going on a nice steady path, doing things methodically in a way that’s made sense.”
The original company, Matandy Steel & Metal Products, remains largely true to its roots. It still deals primarily in secondary material where the metal’s surface properties are less critical, but will source prime if a customer needs it. The company operates three slitting lines – a 72-inch Red Bud, a 60-inch Stamco and a 36-inch Paxson. It also runs two 60-inch cut-to-length lines and two shears.
Its most unusual piece of processing equipment is a 14-inch Ruesch Reduction Mill. The machine is ideal for serving its in-house customer Linrose. “We sell by the pound and they sell by the foot,” Schuster says.
Whatever path Matandy Steel follows in the coming years, its founder will be confident he has left a structure in place that will allow its employees, including his longtime friend and two sons, to share in its success.
“I feel really good about it. The company can be profitable and they can share in the profits now. You can have the nicest building, the nicest equipment, but it all comes down to the people,” Frank Pfirman says.
And the business he built will not be subsumed by a larger enterprise or stripped for parts by a ruthless investor, but be operated by the same local people he entrusted for more than three decades.
“Our legacy is there,” he says.
[Caption:]
Matandy Steel & Metal Products was founded in 1987 by Frank Pfirman.
(Photo courtesy Matandy Steel & Metal Products)