Employee ownership's success pays off for St. Cloud's Marco

More than 70 percent of the 920 employees of St. Cloud-based Marco Inc. are receiving checks that range from thousands to hundreds of thousands to even more than a million dollars, thanks to the just-inked purchase of the technology and business services firm by Minneapolis-based Norwest Equity Partners (NEP).

Capitalism works well when the employees also share in the wealth built up over the years.

And Marco, founded as a typewriter repair shop in 1973, has been an employee stock ownership plan (ESOP)-owned company since 1989. A portion of company cash flow was used annually to buy stock for employees who vest after five years of service.

"The company is very successful," said Marco CEO Jeff Gau, who started as a sales rep at the firm in 1984. "The ESOP worked. All the shares were distributed. And we are debt-free. And we have used some of the cash we generated to buy companies since 2005. And we've grown from 350 employees in 2010 to 920 employees."

Marco expects record revenue of about $213 million this year.

A number of studies have shown that employees who have a piece of ownership, or at least share in profits, have a parallel incentive with the executives and help drive superior performance.

In a way, the Marco ESOP had become something of a victim of its own success. The independently audited value of Marco's stock has grown 1,400 percent over the last decade, particularly in the last several years of the economic recovery.

"It was a mature ESOP," said Gau, who is reinvesting some of his winnings along with key managers and NEP. "Buying back a lot of stock was going to stress our [growth] strategy. We had to deal with it now."

The multimillion-dollar sale price was not disclosed by Marco or NEP, the region's largest private equity outfit, which invests with management teams to try to take portfolio companies to the next level. NEP has paid $50 million to $500 million in the past in maintaining about 20 companies that are held for up to seven years.

Tim DeVries, the managing general partner of Norwest Equity, said NEP has the capital and experience to help Marco continue to grow.

"When I walked into that company to visit, I found it energetic," said DeVries. "This is a cool, homegrown Minnesota company.

"This is the way it's supposed to work. We have capital, expertise in their industry and we will help [management] scale it up."

The company plans a 30,000-square-foot building next to its St. Cloud headquarters next year. It's adding workers.

NEP, which has raised $7.1 billion in capital since 1961, typically invests $30 million to $250 million in companies, or acquires them outright for up to $500 million. It operates portfolio companies in agriculture, consumer, industrial, energy, tech and business services.

Employee ownership has been a growing trend in Minnesota, said Tim Garbinsky of the National Center for Employee Ownership. Local companies include Barr Engineering, Bemidji Aviation, Padilla CRT and TPI Hospitality of Willmar, which operates hotels around the state.

A solar power array atop Louis Industries in Paynesville, Minn., that generated no electricity for most of this year went online last week, ending a controversy with Xcel Energy.

In July, after months of waiting for Xcel to connect the solar array, Leo Louis, CEO of the family-owned contract manufacturer, complained in a front-page Star Tribune article that the utility was engaging in a "program of delay from higher up." The project became a symbol of utility foot-dragging on solar power, a charge Xcel denied.

"They finally came to the table," Louis said. "Chris Clark said he was going to do it, and he did."

On a sunny day last week, Louis said the 1,216 solar panels were producing more than enough power for the factory, with the excess being sold to Xcel.

David Shaffer

The "Patriotic Millionaires,'' 200 self-identified millionaires, plan to "storm" Capitol Hill for two days this week with an "anti-oligarch agenda" that includes support for a federal bill that would raise the minimum wage to $15 per hour.

They also support a bill, proposed in the U.S. Senate by Sen. Tammy Baldwin of Wisconsin, that would quit the preferential treatment of so-called "carried interest" and put it at the higher personal income tax rate of the investment fund managers who benefit.

Group members must have assets of at least $5 million or incomes of $1 million or more.

Metropolitan Economic Development Association (MEDA), the business-backed nonprofit adviser and financier of fledgling minority-owned businesses, has been honored as a "Small Business Leader" by Goldman Sachs, the Surdna Foundation and Opportunity Finance Network (OFN), including a $50,000 grant.

MEDA, which helped its clients add $21 million in financing and hundreds of jobs last year, will use the capital to leverage loans and other assistance.