A York-based manufacturer’s employees bought the company 20 years ago, it was a brilliant decision

When a deal to sell a York County-based manufacturer fell through, a group of employees worked together to make an offer to the company’s owners in a transaction that took only 45 days. This month, the company celebrates its 20^th year as an employee owned company.

Weeks before the turn of the century, Tsugami Corp., the Japanese-based owner of York-based Weldon Machine Tool was on the tail end of downsizing the company and looked to sell it at a loss.

Tsugami transformed Weldon over its eight-year control, taking it from a machine tool maker to a parts and services company with less than half of the employees, said George Sipe, a former president of Weldon. Following the downsizing, Tsugami decided that it would detach itself from the American subsidiary altogether and began looking for a buyer.

They found one, Vermont Machine Tool in Springfield, Vermont, was set to acquire Weldon by the end of 1999 until their loan declined by their bank and the deal was canceled.

“In November [1999], we got news that their bank refused to give them a loan to make the purchase so that fell through,” said Sipe. “We were sitting there trying to figure out what in the world we would do. We knew what the offer was because we saw all of the paperwork that went back and forth between Vermont and Tsugami.”

Knowing Tsugami’s price for the company but unsure of what to do next, Sipe took his problem to the Commonwealth Forum, a monthly meeting of York-based businesses where members and their guests bring up issues they are dealing with.

Drake Nicholas, a Partner at Barley Snyder and a specialist in Employee Stock Ownership Plans, or ESOPs, told Sipe and his team about the benefits they would have if they could form an ESOP to buy Weldon.

“We could make it work for a number of reasons,” said Sipe. “As an ESOP, the company is deemed by the government to be a retirement plan and as such does not pay any federal income tax. That was important to us because in the first year we had a tremendous amount of inventory and machines that were almost finished but we had no buyers for.”

Weldon’s employees would ultimately form their ESOP in record time, according to Nicholas, allowing the group of 16 employees to purchase the company at the low price meant for Vermont Machine Tool and use the tax exemptions allotted to ESOPs to invest back into the business.

Today, the West Manchester Township manufacturer, now under the name Weldon Solutions, has grown from 16 employees to 40 and has expanded from manufacturing and selling CNC Grinders to also offering industrial automation solutions.

Travis Gentzler, Weldon’s current president, said forming an ESOP allowed the company to skirt the tax burden that would normally accompany such a deal, purchase the company and its assets and turn over the company’s current inventory to quickly increase the company’s stock price.

Weldon’s employees took their offer to Tsugami in November shortly after the deal with Vermont fell through. The Japanese company agreed to sell the company for the same price it offered to Vermont, but wanted to close the deal by the end of the year.

“It’s easily the fastest ESOP I ever did,” said Nicolas. “In this day and age you could never do an ESOP that fast with all the compliance issues involved. They had to close it quickly and everything just lined up.”

Gentzler said that those 45 days forever changed the retirement benefits and income for everyone associated with Weldon for the foreseeable future, growing to a sum of money 20 times what was paid for the company.

“If I look at the retirement balances for everyone involved in the ESOP 20 years later from those first days, it has created significant wealth for everyone,” he said.

ESOPs have seen a renewed popularity in recent years, particularly in the York area because its home to so many family-owned businesses, according to Nicholas.

Nicholas said that early in his career he worked mostly in private equity transactions and the minority of his work as an attorney involved ESOPs. Today, a majority of his clients are looking for help forming an ESOP, no matter the percentage of ownership.

“The piece of the puzzle with the ESOP is that the employees stay,” he said. “With Weldon, that is the most rewarding thing for me. Those are jobs that would have been gone. Those people would have had to find work somewhere else.”