PREFERRED PUMP & EQUIPMENT LP
A roundtable discussion about the company’s recent move to become an ESOP.
By Mike Price
Preferred Pump & Equipment LP announced it was an employee-owned company (employee stock ownership, ESOP) in March 2020. Photo courtesy Preferred Pump & Equipment, Fort Worth, Texas.
Founded in 1982 by Randy Lyne, Preferred Pump & Equipment LP has grown from humble beginnings to now having 50-plus branch locations and 600 employees throughout the United States.
A guiding principle for Lyne since starting the business was that an employee should be happy at their workplace and truly enjoy what they do for a living. Based on the company’s continued growth, it’s easy to see that Lyne was successful in creating a positive work environment.
To continue its growth and put to rest questions about the future ownership plan, Lyne announced in March 2020 after more than 15 years of research that Preferred Pump & Equipment is an employee-owned company (employee stock ownership, ESOP).
Water Well Journal was excited to learn more about how the transition to an ESOP has been for Preferred Pump & Equipment and what other companies should consider when succession planning. WWJ caught up with Lyne; Scott Sizemore, chief operations officer; and Lauran Ashworth, benefits specialist and ESOP committee chair.
Water Well Journal: How long did it take to decide on Preferred Pump & Equipment becoming an ESOP? Which ESOP resources did you lean on to help make your decision?
Randy Lyne: The process of deciding to become an ESOP began more than 15 years ago. That was when I first began thinking about how I was going to divest the company upon my leaving the company.
As with any company owner, there are really several possibilities. Sell to someone or another company, sell to current company management, leave to heirs, or sell to the employees at large (ESOP). Selling to management was what I first thought was logical and the best choice.
However, when it comes right down to it, those managers are only 10 to 15 years from retirement themselves. Then the same decision has to be made again. The factors guiding the decision: what is best for the employees’ future and how can I keep the company culture? ESOP simply makes the most sense.
I read all I could find on ESOP companies, talked to numerous bank and financial groups that have ESOP expertise, and then settled on a professional ESOP advisor company to help us through the process.
WWJ: What’s the transition to an ESOP been like and what have been the most common questions from employees?
Lyne: The transition has been relatively smooth. One of our key goals was to change as little as possible going forward. In fact, since the change to an ESOP, I ask employees often: “Have you seen any changes regarding how we operate day to day?”
The answer is very little changes have been felt, other than the obvious positive changes being an employee/owner. The most common questions from employees are regarding how they get stock going forward, how do they “cash out” at retirement, and basic questions regarding how an ESOP works.
Scott Sizemore: Overall, very positive and mostly seamless. Nothing has changed operationally at our warehouse locations, so that transition has been easy. The corporate side has changed due to more regulations and red tape.
With the ESOP change, there are lots of inquisitive employee questions. If you can think of a question, it has probably been asked. To help with those questions, there have been two rounds of employees visiting all our branches to explain the ESOP, how it works, and answer questions as they arise.
Lauran Ashworth: The transition has been a very positive experience. This is a great opportunity for “new owners” at all levels. We view the PPE ESOP as a new benefit for everyone and a benefit that should be well communicated.
All our new owners have a hand in contributing directly to the value of Preferred Pump and it is important we all understand how we contribute. Our goal is to build upon the enthusiasm shown when the ESOP was announced and help all employees understand how this important benefit works.
Randy Lyne founded Preferred Pump & Equipment in 1982. He received the National Ground Water Association’s Life Member Award in 2012 and its Supplier of the Year Award in 2018.
WWJ: As head of the ESOP Communications Committee, what have you learned about ESOPs that might be relevant for water well contractor companies that are considering succession planning to know?
Ashworth: Until you implement a succession plan like an ESOP, you will never know how much your employees will
appreciate what you have done for them. It will still take several more years for employees to fully realize what a great gift Randy Lyne bestowed on us as “owners.”
We’ve also learned this process requires commitment and teamwork to bring all the pieces together. You don’t flip the switch one day and get instant results because employees need to learn how the ESOP functions and how their everyday actions improve the value of the company. These aspects require time and effort from employees at all levels.
WWJ: What’s the morale like at Preferred Pump & Equipment since the ESOP announcement?
Lyne: We have always had high morale at Preferred Pump. That has always been extremely important to us, and one of our highest priorities. The morale has been even better since the ESOP was announced.
Believe it or not, some of our employees, as well as vendors and customers, are under the impression I am old. There were lots of questions about our future after I am gone. Now, with or without me being active or alive going forward, our company’s future is known and secure. Employees are confident that our fun culture and positive values will continue.
Sizemore: When we first made the announcement simultaneously to all employees in March 2020, there was incredible excitement. Randy basically gave a great gift to his employees by adding a retirement benefit without taking away a single benefit.
If we live up to our forecasts, our ESOP will not only change the lives of our employees, but it has the potential to be generationally changing. Had Randy decided to sell Preferred Pump to any number of different options, a lot would change. Now we keep our company culture along with tons of other benefits.
Preferred Pump & Equipment has 50-plus branch locations and 600 employees throughout the United States.
WWJ: What have been the biggest challenges in the transition to an ESOP?
Lyne: I have been a single owner since I founded the company in 1982. No other stockholders, no other board members. Our annual meeting was held with no disagreements or long discussions. I usually held the annual meeting over a cold beer. Now, we have an ESOP board with current management, an outside board member, and an independent trustee. Everything still goes smoothly, but there is time spent discussing and documenting our decisions. The time investment—although not huge—does exist.
Sizemore: Setting up the right structure for our ESOP. Going through this education process, I have learned there are a million different ways to set up an ESOP. We wanted to make sure our ESOP was fair to all our employees—current and future. To that end, we created numerous financial models for various wage earners, ages, start dates, end dates, etc. What we set up today ultimately will affect generations to come.
Ashworth: As with most transitions of this kind, developing and implementing a solid communications plan is the biggest challenge for our Communications Committee. Our goal is to get out a consistent message. We engaged a consultant from the ESOP community to get us off on the right foot and assist us with best practices for communicating a benefit of this significance.
Our other big challenge is to maintain our great culture throughout this process. Preferred has always been a great place to work. We certainly don’t want to take a step back that would negatively affect our environment or customers.
WWJ: How often are you communicating with employees about the ESOP?
Ashworth: It is important to keep your message constant. The Communications Committee members strive to be in contact with their territories. Whether it’s getting out to the branch in person, discussing annual statements over the phone, or celebrating National Employee Ownership Month, we want our employee owners to know that we are available and are here to educate them.
WWJ: What prompted the creation of the ESOP Communications Committee?
Ashworth: Knowing that communication was going to be a challenge, we knew very early that having front-line employees engaged in the communication process was going to be key in the success of our ESOP. When we talked to other employee-owned companies and conducted our research, it was obvious that employee engagement in the process is key and that most successful ESOPs had active Communication Committees made up of employees at all levels.
WWJ: For those water well contractor companies considering succession planning, what advice would you share with them?
Lyne: Do not wait; have a plan. You should have a plan for succession even if you are young and intend to “always” be around and running your company. You can change your plan in the future, but you should always have a plan.
In fact, revisiting your future plan often, such as annually, makes you think about the future and reassess what is best for your company and your employees—and decide the plan that is best for all. It should be an ongoing process, one that gets better and more concrete as time goes on.
Sizemore: Don’t wait. Even if you plan on working for many years to come, everyone should be developing a succession plan. That plan can change over the years, but you should have a plan created. None of us ever know when our time is up.
Secondarily, I would recommend owners make a list of their priorities and the importance of each of those. Every owner is going to have different goals when it comes to succession. Some owners are focused on maintaining the company culture. Some are concerned with keeping the business within their family. Others may be more focused on maximizing their cash and tax avoidance. Once an owner identifies their dozen or so priorities, then the succession method becomes more evident.
WWJ: What have you personally learned about conducting business virtually in 2020 and into 2021? Have you leaned on any specific resources to help you?
Sizemore: I learned that I do not enjoy conducting business virtually. Most people are social creatures. We are all fortunate enough to work in a wonderful industry with a lot of great people.
As events start happening again, it is evident that most people are ready to get back together and get back to enjoying life amongst others. Just like others, I have leaned on technology during this limited travel world. Microsoft Teams, Zoom, and GoToMeeting have all become standard methods for conducting business with vendors.
WWJ: In June 2010, Preferred Pump & Equipment acquired Pulstar Manufacturing in Dodge, Nebraska. How has that relationship been and what are some of the newest innovations on Pulstar pump hoists that you’re most proud of?
Sizemore: Pulstar has been an incredible acquisition. Albin Janecek, the founder of Pulstar, has always focused on building the highest quality pump hoist on the market.
For that reason, it fit perfectly with Preferred Pump’s mentality of supply quality products. Keith Vering, who now manages Pulstar, continues to focus on quality. Keith and his production team treat every hoist as if it is their baby. Since the acquisition, we increased our focus on safety. We want to ensure water well contractors have the safest equipment available to them.
WWJ: What advice would you share with business owners wanting to create a similar “positive, fun, and supportive work culture” like you have at Preferred Pump & Equipment?
Lyne: One of the key guiding principles I have felt important since I started my business is that an employee should be happy at their workplace and truly enjoy what they do for a living—they should enjoy working. We spend almost half our waking hours at our workplace. Each and every person should enjoy what they do.
If you really care about wanting your employees to enjoy working at your company, you obviously have to strive to make it a place that is positive and fun—a place they enjoy. Treat employees as you want to be treated, and insist employees treat each other with respect and really care and rely on one another.
Sizemore: Make it a priority. The employee owners at Preferred Pump work hard. But occasionally, you must step back and do something to show your appreciation for that hard work. It can be something as simple as a weekly or monthly cookout. Set up an annual employee appreciation event. Give employees more responsibility when they deserve it.
Everyone wants to be appreciated, so figure out a way to show your appreciation. Bring your crew to our Preferred Pump open house—we will show them a good time and it does not cost them a dime. Take them to a water well convention. Use the convention as an opportunity to teach them about the industry but also treat them to some fun outings.
WWJ: Looking back, what are your fondest memories in creating the company?
Lyne: My fondest memories are the personal interactions I have had with employees, customers, and vendors. I have had so much fun interacting with everyone involved in our industry. All those people who make up our wonderful industry are my friends.
WWJ: Has your role changed since the ESOP? Is there a set time when it changes?
Lyne: My role really has not changed. I still hold the same position of president, and I do not think anything has changed since we became an ESOP. As we become larger with more branches, employees, and revenue, delegation becomes more important every year. But that happened before and after the ESOP formation. Really, nothing has changed with my role.
WWJ: Lastly, how does it feel to leave Preferred Pump & Equipment’s future in the hands of your employees?
Lyne: It feels really, really good. Very gratifying. We have formalized what has always been the case at Preferred Pump. My employees have always been much more than employees. Honestly, they have always been my partners. I have had a wonderful career in business.
I would never have succeeded without wonderful, competent, engaged, and motivated employees. Legally, I was a single owner sole proprietorship for 38 years before becoming an ESOP. In reality, I have always had great partners—my fellow employees—that has not changed.
Mike Price is the senior editor of Water Well Journal. In addition to his WWJ responsibilities, Price contributes to the Association’s scientific publications. He can be reached at email@example.com, or at (800) 551-7379, ext. 1541.