Employee ownership trusts are not just for small businesses anymore.
Consumer Direct Care Network, with more than 100,000 home caregivers across 14 states, has transferred roughly 30% of its shares into a trust for employees, an emerging form of employee ownership that has been touted as a more flexible and inexpensive exit alternative to employee stock ownership plants, or ESOPs.
Such trusts hold the shares on behalf of employees and manage their ownership stakes, as well as their share of profits.
Most US employee ownership trusts to date have been smaller businesses, with dozens or hundreds of employees (see, for example, “A Utah auto shop demonstrates a pathway to worker ownership via a perpetual purpose trust”). In Canada this week, Taproot Community Support Services, which provides personalized support services to struggling children, youth and adults, became Canada’s largest employee-owned company through an EOT. Around 750 social workers are now majority-owners of the company.
The conversion of Consumer Direct Care Network, with 135,000 caregivers for young children, aging adults and individuals with disabilities, is one of the largest conversions to an employee ownership trust in the US to date. As part of the transition, the network, a unit of Consumer Direct Holdings Inc., has been certified as employee-owned, with more than 30% of the company held on behalf of employees.
“Our goal is to really see employee ownership scale,” said Zoe Schlag of Common Trust, which helped structure the transaction with Denver-based law firm Holland & Hart. Since 2022, Common Trust has designed 16 EOTs to create ownership for hundreds of workers.
Schlag said the deal could set a precedent for owners of large businesses who are considering an exiting to their employees through the EOT. Larger businesses have become interested in EOTs because they can ensure an equitable distribution of profits among current and future employees, based on factors like tenure and seniority. For employees, the structure gives them access to a portion of future profits without putting up capital or putting themselves at risk.
Some sellers, Schlag told ImpactAlpha, “really like the elements of being able to protect their mission as part of the transition.”
In a typical transaction, the purchase of the shares is financed by a combination of senior debt from a bank, mezzanine debt from a financier like Common Trust and some amount of seller financing. The capital is loaned to the trust, which uses the proceeds to buy up the shares from the owner. The owner, the bank and Common Trust are paid back through company cash flows over a long-term horizon.
Exit to employees
Missoula, Mont.-based Consumer Direct Care Network, launched in 1990, has provided caregivers to hundreds of thousands of families in 14 US states. The trained caregivers provide long-term in-home care, ranging from habilitative and respite care to financial management and chore services, via agreements with state Medicaid agencies, federal Veterans Administration providers, local government agencies, managed care organizations, commercial insurers and private individuals.
The company partnered with Common Trust to set up the EOT to give employees a stake in the business. Consumer Direct Care’s Ben Bledsoe says the goal is to honor the essential contributions of its caregivers, as well as protect the company’s mission to deliver quality care in US communities. Home healthcare has attracted the interest of private equity investors, which typically cut costs and take on debt to fund expansion – and often sell within a few years.
“The people who dedicate their lives to providing care deserve better than boardroom decisions that put profit over people,” he said. “That’s why we are making a lasting investment in care — and in those who deliver it every single day.”
The care economy is one of the fastest-growing sectors of the US job market, as aging baby boomers look to “age in place,” living independently in their homes and communities. Caregivers are in short supply and generally overworked, giving employers able to offer better benefits and other perks an advantage in recruitment and retention. Those factors may make employee ownership trusts an attractive direction for the industry.
The Trump administration has proposed a rule that would get rid of minimum wage protections for upward of 3.7 million caregivers for children and aging adults in the US.
Schlag said she was impressed by Bledsoe’s commitment to investing in its caregivers.
“One of the things we were very excited about throughout this transaction, and which just showed up throughout the design process, was the commitment of the company to caregivers as a core driver of the company’s success,” she said.
Vanguard companies
EOTs are purpose-driven trusts that manage the ownership stake of employees. ESOPs, the more common alternative, give employee-owners an individual stake in their companies. ESOPs are regulated by the 50-year-old Employee Retirement Income Security Act. EOTs are governed by standard trust laws.
Many mission-driven businesses in the US and Canada are looking to ownership trusts to protect their missions and values. The trust structure makes it possible to embed the company’s mission by hardwiring it into its governance clause, shielding the company from ownership changes that could undermine its values.
“We’ve seen folks who are turning to the EOT to protect organic farming, or certain hiring practices, or sustainability in their supply chain,” says Schlag. “The trust agreement is where those purposes are articulated.”
Natural Investments, a California-based registered investment advisor exclusively dedicated to socially responsible, sustainable and impact investments, became employee-owned last year through a perpetual purpose trust (see, “This sustainable investment firm is now governed by a perpetual purpose trust”).
In the UK, 6% of all business sales have gone to workers through EOTs. Since the UK government passed its EOT law in 2014, close to 2,000 businesses have been sold to more than 120,000 employees, up from less than 500 at the end of 2020. Laws in the UK and Canada have established tax advantages to incentivize owners to exit to their employees via the EOT.
Grantbook, a Toronto-based tech advisory firm for global grantmakers such as World Education Services, Tides, Surdna and Libra Foundations, became Canada’s first EOT earlier this year.
Both Grantbook and Taproot are B Corps. Rewrite Capital Advisors, a Vancouver-based M&A advisory firm that has carved out a specialty in employee ownership, says around 70% of Canadian businesses looking to become employee-owned through the EOT have B Corp certification for their social and environmental practices.
