In 1986, twins Jack and Frank Blythe sold their Charlotte family’s 65-year-old Blythe Brothers construction business to Britain’s Alfred McAlpine, which built Wembley Stadium and other famous projects across the pond.
The plan was for the Blythes to lead the Brits’ expansion in the U.S., where growth prospects were brighter than the United Kingdom. Like many acquisitions, the buyer-seller match wasn’t effective, so the brothers left after three years to start another company.
Over the next 35 years, Jack and Frank built their new business, Blythe Development, into a significant regional paver of roads and commercial projects such as the new River District in west Mecklenburg County. Annual revenue tops $230 million, while the payroll has been in the 800- to 1,100-employee range in recent years.
By 2022, the Blythes hit another inflection point because Jack and Frank, now in their early 70s, wanted to pull money out of the business. The typical path is to hire an investment banker and auction the company to the highest bidder, which is usually an industry peer or a private equity group. Earlier this year, for example, veteran Charlotte contractor Pat Rodgers sold her 61-year-old family business, Rodgers Builders, to Japan’s Kajima,
a large global contractor.
This time, the Blythe brothers chose a more unusual route, selling the business to an Employee Stock Ownership Plan formed to keep family control while broadening the ownership of the company. The move puts equity in the hands of more than 800 people who work at least 1,000 hours a year at the business. Terms weren’t disclosed.
“The stars aligned, and we think this will be a huge benefit to everybody,” says President Luke Blythe, who is Jack’s son. “We didn’t want to lose the family business.”
ESOPs have been around for decades. The most prominent 100% employee-owned U.S. company is Publix, the Lakeland, Florida-based supermarket chain that is gaining market share in North Carolina. It operates 1,416 stores and had $57 billion in revenue last year.
ESOP-owned companies with significant North Carolina operations include Atlanta-based Choate Construction, Monroe-based State Utility Contractors and Roanoke, Virginia-based Branch Group. Choate and Branch regularly are listed on Engineering News-Record’s annual ranking of the 400 largest contractors.
But creating an ESOP remains a rarity. The nonprofit N.C. Employer Ownership Center reports 137 ESOPs operate in the state, an “extreme minority” of 200,000-plus enterprises, says Doug Blizzard, who leads Catapult Employers Association’s product services group. Catapult advises thousands of N.C. businesses on human resources issues.
Two key issues prompted the Blythes’ unconventional choice. First, the brothers wanted Luke to continue leading the business because of their confidence in him and two key colleagues, Chief Financial Officer Joey Dodson and Stoney Bumgardner, vice president of operations. Luke Blythe has worked for the company since graduating from UNC Chapel Hill in 2000. He became president in 2022. Dodson joined Blythe in 2002 after being CFO of Park Meridian Bank in Charlotte. Bumgardner was hired in 2007 as an estimator.
Second, the Blythes think the ESOP will give Blythe Development an edge in retaining and recruiting employees. A short supply of workers is a huge issue in many parts of the construction industry. Talented staffers can easily jump to other firms. Moreover, paving is hard, demanding, outdoor work.
“We’ve always been family run, but employees are the lifeblood of the company,” Luke Blythe says. While the family is proud of the company’s pay, benefits and culture, they concluded that an ESOP could set it apart from the pack.
“We’ve done a good job of motivating managers and foremen, and we have lots of longevity there,” Blythe says. “But there’s a lot of turnover among hourly employees, many of whom live paycheck to paycheck.” While the company offers a match for its staffers’ 401(k) plan, which will continue along with the ESOP, a large percentage of hourly workers don’t participate.
Motivation and talent matters in the heavy construction industry, in which hourly employees sometimes handle large earth-moving equipment valued at $500,000 or more, Dodson notes. “We need someone who is conscientious to be operating those machines,” he says.
Betting on the Company
There are lots of reasons that ESOPs are rare, and Blythe officials acknowledge the extra risk involved. ESOPs rely “mostly on future company success, so in a sense you’re betting on the company,” Blizzard says. And many business owners don’t want to worry about their company after the sale, or “they don’t care for the idea of employees becoming vested owners in the business, in much the same way businesses in North Carolina resist unionization efforts by employees.”
But ESOPs can be a smart way to preserve excellent customer service that is a hallmark of many family businesses, he says. “There are entire industries now where private-equity ownership has stripped away service in favor of short-term profits.”
The Blythes showed business savvy and a commitment to their staff in opting for an ESOP, says Josh Goldblatt, the Charlotte managing director for Lazear Capital Partners. The Columbus, Ohio-based investment bank, which specializes in ESOPs, says that workers with equity have longer job tenures, greater household net worth and are less likely to be laid off in recessions.
The basic way that the plans work is that owners sell the company to a trust that appoints an independent person to represent employees. Among the trustee’s key tasks is working with a financial evaluation firm to determine a fair price to pay for the business. Fair value is typically comparable to non-ESOP transactions so owners don’t feel they received less than in a third-party sale.
Many ESOP deals, though not all, involve a financial advantage because sellers don’t have to pay capital gains tax, which is typically in the 20% to 30% range, depending on the state. Going forward, ESOPs also don’t pay corporate income tax, which can help pay back debt quicker and build equity value for participants. The tax benefits reflects the bipartisan popularity of the plans. Both Democratic and Republican officials view employee ownership as a way to lessen economy inequality and create retirement security.
The government eventually gets paid, of course. Employee-owners pay ordinary income tax when they withdraw money from the ESOP. The hope is that staff members will stick with their employer for years, building a valuable asset. Because the goal is to spread wealth more evenly, ESOPs have detailed rules that block a small group of senior managers from gaining advantages in compensation.
The ESOP has to pay back its transaction debt, typically over many years just like any other borrower. ESOPs often include seller-financing, which exposes sellers to some risk if there is an unexpected declined in business. Interest rates and loan maturities depend on the strength and quality of the business, but are typically similar to other types of mergers and acquisitions, Goldblatt says.
Mostly, the business needs to perform and avoid dramatic swings in revenue and profits. ESOPs need to have low debt and consistent profits, according to the N.C. Employee Ownership Center.
Blythe Development had a strong 2023 with an excellent backlog of projects over the next two years, giving its leadership confidence that it will keep growing profitably, Luke Blythe says. Federal and state budgets call for increased spending on infrastructure, giving Blythe Development confidence that it will grab its share of the business.
Beyond highways, the company has lengthy experience in bridges, aviation, transit and other projects in the Carolinas and Virginia. It also developed four Charlotte-area golf courses in the late 1980s, then sold them in 1999.
The company’s confidence is evident in the company’s new Rock Hill asphalt plant, an $8 million investment slated to open in July. It is the company’s fourth plant and will help expand its reach further into the Palmetto State. Customers have already secured contracts for more than 200,000 tons of asphalt from the new plant, which is the second of its type in fast-growing York County.
Battling the PE Folks
More owners don’t opt for ESOPs because they lack understanding and private equity has “engulfed” the M&A business, now accounting for more than 50% of middle-market company sales, Goldblatt says.
Lazear expects ESOPs to gain market share in coming years as more sellers realize the advantages and a changing labor market promotes broader ownership. The plans report “high levels of engagement, retention and productivity since the employees are more vested in the long-term results of the company,” Blizzard says.
ESOP advocates say the plans also can benefit local vendors, who often lose their business ties when a middle-market company sells to a national PE firm, says Goldblatt. Before joining Lazear, he lent money to Blythe Development for several years as a SouthState Bank officer. The Blythes’ lender, insurance company and bonding agency supported the transition to an ESOP and remain key partners with the company, Dodson says.
“Bankers are starting to get on board with ESOPs because if a company sells to a PE group, the bank will often lose everything, like loans and deposits, to banks in New York or Chicago,” Goldblatt says.
But the key issue for ESOPs is the sellers’ motivation. “If you have someone who just wants a check, an ESOP isn’t the resolution,” Goldblatt adds. “You have to have a family that cares about rewarding their employees and wants their legacy to continue.”
Legacy matters to the Blythes. Luke Blythe’s great-grandfather, F.J “Jack” Blythe., and his uncle Joseph Blythe started their company in 1921 with the first project involving the paving of Lawyers Road in east Charlotte. Notable projects included work on the U.S. Marine Corps’ Camp LeJeune base that opened in Onslow County in 1941, the original launching pads at Cape Kennedy in Florida, and the South Carolina dam that led to Duke Energy’s Oconee Nuclear Station.
The Blythes also diversified in other businesses, including the first asphalt plant in Puerto Rico. The sale to McAlpine in 1986 occurred as the contracting industry was consolidating significantly. “My dad and brother intended to keep running the company, but it was a bad experience,” Luke Blythe says.
Surprisingly, the European owners have retained the Charlotte family’s name for nearly 40 years. Blythe Brothers became Blythe Construction, which is now owned by France’s Vinci Construction, which had revenue of nearly $74 billion in 2023. Blythe Construction is among North Carolina’s most prominent highway contractors and operates about a dozen asphalt plants.
Few people outside the construction industry know that the Blythe Construction and Blythe Development are distinct, Luke Blythe says.
Jack and Frank Blythe remain board members and advisers, and still show up often at the company’s office in south Charlotte, not far from the South Carolina state line. But Luke insists he and his colleagues are running the business with an intent to keep growing for decades.
Since completing the transaction, Blythe, Dodson and Bumgardner have spent a lot of time explaining the ESOP to staffers. Some quickly provided ideas for cost savings, suggesting they are making the shift from worker to owner. But the management trio agrees that it may take a few years for some to embrace the somewhat arcane ESOP. “Once they open their statements, hopefully they will have a better understanding of the impact,” Luke
Blythe says.
