Making the Right Choice: Harpoon Brewery’s ESOP Story

[Music] we're here today in boston visiting harpoon brewery a company that started in 1986 when it received brewing permit number one in the commonwealth of massachusetts in 2014 the founders sold 48 of the business to their employees through an esop the reason we're here is because over the next 10 years we have something called the silver tsunami that's coming our way that is 2.5 million businesses that need to transition from their current baby boomer owner to something else as that current owner retires with that comes a great transfer of wealth producing assets we're here today at harpoon brewery to find out why they chose an esop and why others should consider forming an esop back in the 70s and 80s if you'd like beer in the united states it was light yellow lagers coast to coast i did a backpacking trip for two months after graduation to europe and discover these different beers and styles and the histories and i just absolutely loved it scratching our heads saying like why do we have none of this in the united states this is the number one consumer market in the world but why do we have zero choice when it comes to beer fewer than 100 breweries in the united states at the time we were the first brewery to open in massachusetts and i think 15 years so it's been a long ride in craft beer back in that time brewers were all in industrial parks out on the interstate someplace in europe you had breweries right in the center of town with beer gardens or beer cellars they were part of the community and that was always our vision here at harpoon was to kind of make our brewery part of the greater boston community humankind has been making beer since before recorded history so we've grown a lot since we were first open but the process of making beer hasn't changed then it doesn't matter if there's 10 gallons of it like you would make on your stovetop at home or if there's 4 000 gallons of it which is the brew size that we use here these are all 120 barrel fermenters that you see inside the facility we have some 500 barrel fermenters outside ipa is probably the one that i drink the most harpoon ipa is wonderful really nicely balanced floral ipa that's always a great beer to have on tap anywhere you go kind of the focal point of every party that's what people want to talk about beer my partner and i right after we turned 50 started talking about hey how long do we want to kind of keep doing this a few years later it became a little bit more formal he's like no i want to have a liquidity event harpoon was at a crossroads where one of the co-founders was deciding to leave and it would have been very easy for the company to just decide to sell to a bank or sell to a larger brewery and kind of cash out and move on acquisitions of small independent breweries were happening left right and center dan first really started to entertain the notion of taking us down this path towards employee ownership and at that point he then had to pivot and convince all of his business partners that it was also a good decision and we had gotten our shareholder base down to eight individuals my partner and i who had about 90 of the company between us and then six other individuals two outside directors and four senior managers did have some choices about the different directions that we could go you know selling to a strategic buyer whether it be a big brewery or private equity or some other institutional buyer there's a lot of misinformation out there i had heard some of those misconceptions like oh you can't get a decent price it's so encumbered you can't sell the company you can't run the company the way you want to run it afterwards and the more i dug into it about estops i realized like all that's not true you can at the end of the day do much better than if you're selling a private equity or to a larger company the weeks leading up to it we're discussing what we thought was best for our fellow employees for ourselves for our families for the company there's a lot of different pieces that had to be kind of brought into the fold to actually get the deal done and having esop advisors esop lawyers was crucial folks from the esop advocacy organizations who helped teach dan and everybody what it would mean and what the benefits would be and really educated me and our cfo on hey here's how esops can work so as it got down to the wire my partner and i each kind of presented to the group sell the company or go esop because i don't want to do the esop without the support of this group and particularly the four senior managers they were all in a position to make a good deal of money if we just sold the company the vote was six to zero to pursue the esop which was incredibly gratifying and it was just a huge decision that really surprised everybody they didn't know that it was coming when the word went out that they wanted everyone to go over to the beer hall everybody was like wow that's strange everybody was brought into the room there were some people in suits in the background which freaked people out a little bit for those of you who aren't familiar with the craft beer industry jackets and ties are a fairly rare sight indeed and i said i'd like to introduce all of you to the new owners of a large minority stake in the brewery you could hear a pin drop everybody stand up turn to each other shake your new owner's hands it's all you you are all now the owners of 48 of nashville brewing company it was an amazing night so like immediately after breaking that news beerus got sent around the room standing ovation and a lot of celebration afterwards it just erupted into like a big party we had a great culture really before the esop it's made it even better since i think if we had gone down the road of taking institutional money a strategic sale a lot of the values that we have had over a long period of time would have gone out the window i honestly don't think the company would be here in boston i think the brand would probably exist on in which case you know would they want to be producing beer in downtown boston like we have been authentically since 1986 i don't know i don't think there's any end to the upside it's incredible what a group of employees can do when they put their minds to it we're trying to make this company as profitable and as pleasurable place to work as you possibly can it makes everybody think together about the bottom line and working together will make a better product in 2014 we were struggling to finish six batches through our filtration system per day and now we do 10 11 12 batches that's with no substantial equipment added in the process the weight of these dramatic efficiency improvements aren't big sort of home run ideas they're these little base hits we'd be doing a disservice not only to ourselves but the people that we've worked with for in some cases decades if we didn't say let's go the esop route let's invest in ourselves they care so much about the company they care about the products they care about the people it's just so nice to be a part of it so i'm lucky i thought there'd be dozens and dozens of craft brewery esots by now if not hundreds to be honest with you i thought it would be like the model i think that there's a lot of people that don't even realize that there are employee-owned companies and that there are employee-owned breweries you're doing a disservice to yourself if you don't research esops you want to find those good advisors they're out there talking to a good esop attorney talking to a good esop investment banker valuation firm and is a very very welcoming community people are happy to talk to you about their esop i hope you have a chance to experience an esop for yourself and if you're a founder of a company or a ceo or leader find a way to make an esop work for you cheers if you want to learn more about forming an esop please contact the local chapter of the esop association and consider attending a conference or event [Music]