October 4, 2022


Pi

rivate-stock giant KKR made a splash this spring when it sold garage door company CHI to Nucor for $3 billion—and shared a chunk of the windfall from its highest-performing acquisition in more than 30 years with the company’s employees who made an average of $175,000 on the deal.

Today, employee ownership doubled with the sale of Minnesota Rubber and Plastics to Swedish publicly traded company Trelleborg for $950 million. The Plymouth, Minnesota-based company’s nearly 1,500 employees, the vast majority of whom are hourly, will receive between three months and two years of annual pay, depending on their tenure with the company.

“There’s a minimum we go for where it makes sense,” says Pete Stavros, co-head of private equity for the Americas at KKR. “We don’t think it’s effective to say, ‘Here’s $100 in stock.’ At this level, it’s just a bonus. You have to pay people enough in stock to create real savings.”

On Tuesday, about 300 Minnesota Rubber and Plastics workers traveled by bus to the company’s newly completed innovation center from the company’s Midwestern outposts in River Falls, Wisconsin, Mason City, Iowa and elsewhere to hear the news. Hundreds more based in Mexico, Europe and China joined the event on Zoom. As Stavros and KKR partner Josh Weisenbeck announced the amounts for each of the workers’ seven installments — ranging from $12,000 to $96,000 for a worker with a typical salary of $48,000 — the crowd cheered and waved blue foam.

Raye Ann Brutger, 65, who works as a day-shift plastics molder at the Litchfield, Minnesota, plant and has been with the company for 27 years, sat in the front row and jumped up and down when she heard it. “This money means a lot to me,” he says. “I’m very close to retirement, so I think the first of the year I’ll try to go part-time.”

Stavros, 47, whose father worked at a small construction company in Chicago, has long pushed for employee stock ownership. Eleven years ago, at KKR, he began implementing these ideas while leading the industrials team. The program was later rolled out more broadly across KKR’s portfolio.

In total, KKR has now implemented ownership plans in 30 of its portfolio companies. He has further committed to broad ownership in all control deals in the $20 billion private equity firm. About 45,000 non-management workers now have equity in these businesses. The Minnesota Rubber and Plastics deal represents its fifth worker-owned exit in the game.

For a Minnesota Rubber and Plastics worker with a typical salary of $48,000, the sale meant income of between $12,000 and $96,000, depending on tenure.

“There are others in line,” says Stavros. “You’ll see more next year and more the year after that.” Given today’s market volatility, however, there are unlikely to be any more such exits before the end of the year.

Stavros’ ultimate goal is much greater. Help set up property projects, a not-for-profit organization focused on expanding equity ownership across America by acquiring private equity firms whose portfolio companies represent millions of employees. In addition to KKR, about 20 private equity firms—including TPG, Leonard Green, Silver Lake and Warburg Pincus—have signed on to Ownership Works and committed to ownership programs in at least three of their companies by the end of 2023. a stated goal : Creating $20 billion in wealth over 10 years, helping low- and middle-income households and diversifying the distribution of wealth.

“If all private equity firms can participate, it’s the fastest path to scale,” says Stavros. “We could be talking about many millions of people.” In terms of dollars, they could easily go into the billions if each of these 90 companies has 1,000 employees receiving tens of thousands of dollars each. “You almost have to count the zeros because it’s like it’s impossible,” says Stavros. “Your head is exploding.”

Known for popularizing leveraged buyouts in the 1970s and 1980s and key players in the book Barbarians at the Gate, KKR’s billionaire founders Henry Kravis ($7.7 billion) and George Roberts ($8.5 billion) it might seem unlikely that players would push for employee ownership. But like Forbes As detailed in a magazine article three years ago, both private equity and KKR, now a publicly traded company with a market capitalization of $45 billion, are very different than they once were. “Businesses that have owners who care about them and management who care about them will perform better,” Roberts said at the time.

At the event, Stavros and Minnesota Rubber and Plastics CEO Jay Ward, who took the top job in 2017 after 18 years at publicly traded industrial company Donaldson, took the stage to congratulate employees and share slides of some financial metrics the company’s. implementation. The company, which makes specialty rubber and plastic materials for products including heart valves, continuous glucose monitors, transmission parts and beer keg valves, has grown revenue by 40% and Ebitda by 50%–inflating Ebitda margins to 24.5% from 20.6% – since the KKR acquisition in late 2018. Minnesota Rubber and Plastics’ annual sales are about $220 million.

The improvements were due to several basic functional things. Raw material waste, a major cost, for example, was reduced by 52%. Meanwhile, the number of products released on time increased from 38% to 93%.

“You’d think this is Business 101, but that’s the magic of having some structure,” says Ward. “What KKR forced us to do is say, ‘You can’t have 20 priorities, you can’t have 10. What are the few most important things that you’re going to track monthly, weekly, daily, and how are you really going to accomplish that? ?”

The share of equity given to employees comes from taking a chunk of what would have gone to management, which is usually 10% to 15%, and slightly increasing the overall pool for employee shares. This means that an ownership plan that is too big for employees doesn’t cost investors or management as much. “The data so far shows that the pie is growing, so everyone is better off,” says Stavros.

At Minnesota Rubber and Plastics, workers talked about using the funds to cover rising tuition costs and help pay for childcare costs. As part of the deal, employees will also receive free financial advice from Goldman Sachs’ Ayco division and help with their taxes from Deloitte.

Brent Hupper, 47, operations manager at two of the company’s factories, says he plans to use some of his cash to help his three children. “Each of the kids will get a portion of it to help them with their college loans,” she says.

Breanne Boster, 35, a talent manager in the company’s corporate office, says the timing of getting a payout of about $150,000 was especially helpful as she is expecting her second child in November. “It will be nice to have that financial cushion,” he says. “We need a bigger vehicle and we’ll be able to put aside college savings for the kids.”

For KKR, the acquisition of Minnesota Rubber and Plastics by Norwest Equity Partners in late 2018 was the second purchase of a mid-market industrial company. Today’s sale price represents a return of roughly three times its investment.

By late afternoon, KKK shares were down more than 4 percent, while those in Stockholm-listed Trelleborg were down 5.5 percent.



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