KKR Sells Minnesota Company And Blue-Collar Workers Get A Piece Of The Pie In Employee-Ownership Program
rivate-equity giant KKR made a splash in the spring when it sold garage-door firm CHI to Nucor for $3 billion—and shared a piece of the windfall from its highest-performing buyout in more than 30 years with the company’s workers who made an average $175,000 on the deal.
Today, it doubled down on employee ownership with the sale of Minnesota Rubber and Plastics to Swedish publicly traded company Trelleborg for $950 million. The Plymouth, Minnesota-based firm’s nearly 1,500 employees, the vast majority of whom are hourly workers, will receive between three months and two years of annual pay, depending on their tenure with the firm.
“There’s a minimum that we’re shooting for where it’s meaningful,” says Pete Stavros, co-head of private equity for the Americas at KKR. “We don’t think it’s effective to be like, ‘Here’s $100 in stock.’ At that level, it’s just a bonus. You need to pay people enough in stock to create real savings.”
On Tuesday, some 300 employees of Minnesota Rubber and Plastics traveled by bus to the firm’s recently completed innovation center from the company’s midwestern outposts in River Falls, Wisconsin, Mason City, Iowa, and elsewhere to hear the news. Hundreds more based in Mexico, Europe and China logged on to the event on Zoom. As Stavros and KKR partner Josh Weisenbeck announced the amounts for each of seven tranches of employees—ranging from $12,000 to $96,000 for a worker with a typical salary of $48,000—the crowd cheered and waved blue foam fingers.
Raye Ann Brutger, 65, who works as a plastics molder on the day shift at the Litchfield, Minnesota, plant and has been at the company for 27 years, positioned herself in the front row and jumped up and down when she heard. “This money means a lot to me,” she says. “I am super close to retirement, so I think come the first of the year I will be trying to go part time.”
Stavros, 47, whose father worked for a small construction company in Chicago, had long been pushing for employee stock ownership. Eleven years ago, at KKR, he began putting those ideas into practice while he was head of the industrials team. The program later expanded more broadly throughout KKR’s portfolio.
All told, KKR has now put ownership plans in place at 30 of its portfolio companies. It has further committed to do broad ownership in all the control deals in its $20 billion private-equity business. Some 45,000 workers outside of management now have equity in those businesses. The Minnesota Rubber and Plastics deal represents its fifth exit with employee ownership in play.
For a Minnesota Rubber and Plastics worker with a typical salary of $48,000, the sale meant proceeds of between $12,000 and $96,000, depending on tenure.
“There are more in the queue,” Stavros says. “You will see more next year, and more the following year.” Given today’s market volatility, however, there aren’t likely to be more such exits before year end.
Stavros’s ultimate goal is far larger. He helped set up Ownership Works, a nonprofit focused on broadening equity ownership across America by getting buy-in from private equity firms, whose portfolio companies account for millions of employees. In addition to KKR, some 20 private-equity firms—including TPG, Leonard Green, Silver Lake and Warburg Pincus—have signed on to Ownership Works and committed to ownership programs in at least three of their companies by the end of 2023. The group’s stated goal: Create $20 billion of wealth in 10 years, helping low- and middle-income households and diversifying the distribution of wealth.
“If all the private-equity firms can get on board with this, it is the fastest path to scaling,” Stavros says. “We could be talking about many millions of people.” As for dollars, they could easily go into the billions if each of those 90 companies has 1,000 workers who receive tens of thousands of dollars apiece. “You almost have to count the zeros because you’re like that’s not possible,” Stavros says. “Your head explodes.”
Known for popularizing leveraged buyouts in the 1970s and 1980s and key players in the book Barbarians at the Gate, KKR’s billionaire founders Henry Kravis (worth $7.7 billion) and George Roberts (worth $8.5 billion) might seem to be unlikely players to be pushing employee ownership. But as Forbes detailed in a magazine feature three years ago, both private equity and KKR, now a publicly traded company with a market cap of $45 billion, are very different than they once were. “The businesses that have owners that care about them and management that cares about them are going to outperform,” Roberts said then.
At the event, Stavros and Minnesota Rubber and Plastics CEO Jay Ward, who’d taken the top spot in 2017 after spending 18 years at publicly traded industrials firm Donaldson, took the stage to congratulate employees and share slides with some metrics of the company’s financial performance. The firm, which makes specialized rubber and plastic materials for products that include heart valves, continuous glucose monitoring devices, transmission parts and beer keg valves, has increased revenue by 40% and Ebitda by 50%–swelling Ebitda margins to 24.5% from 20.6%–since KKR’s acquisition in late 2018. Minnesota Rubber and Plastics’ annual sales are approximately $220 million.
The improvements were due to pretty basic operational stuff. Raw materials waste, a major cost, for example, dropped 52%. Meanwhile, the number of products launched on time rose from 38% to 93%.
“You would think this is Business 101, but that’s the magic to having some structure,” Ward says. “What KKR forced us to do is to say, ‘You can’t have 20 priorities, you can’t have 10. What are the few most important things that you are going to track monthly, weekly, daily and how are you really going to achieve that?’”
The equity stake given to workers comes from taking a sliver from what would have gone to management, which is typically in the range of 10% to 15%, and slightly increasing the overall pool for employee shares. That means that an ownership plan that’s a very big deal for blue-collar workers doesn’t cost investors or management that much. “The data so far shows the pie grows so everyone is better off,” Stavros says.
At Minnesota Rubber and Plastics, employees spoke of using the funds to cover the rising costs of tuition and to help pay for the expense of childcare. As part of the deal, employees will also get free financial counseling from Goldman Sachs’ Ayco division and help with their taxes from Deloitte.
Brent Hupper, 47, operations director at two of the company’s plants, says that he plans to use some of his cash to help his three kids. “Each of the kids will get a portion of that to help them with their college loans,” he says.
Breanne Boster, 35, a talent manager at the firm’s corporate office, says that the timing of getting a roughly $150,000 payout was particularly helpful as she’s expecting her second child in November. “It will be nice to have that financial cushion,” she says. “We need a bigger vehicle and will be able to put aside college savings for the kids.”
For KKR, the acquisition of Minnesota Rubber and Plastics from Norwest Equity Partners in late 2018 was its second purchase of a middle-market industrial firm. Today’s sale price represents a return of roughly three times its investment.
At late afternoon, shares of KKK had fallen more than 4%, while those of Stockholm-listed Trelleborg had declined 5.5%.