The 10-year stock buyout of East Harding Construction of Little Rock by its president and CEO is a succession plan well executed, and the three partners who accomplished it together were happy to share with Arkansas Business why it worked out.
The buyer, Van Tilbury, and the sellers, Bob East and Tom Harding, said the success of a succession plan depends on several factors, including finding the right partner or partners; preparing for any and all contingencies; starting the process early, and taking ample time with it; and addressing any arising issues immediately.
Tilbury became the sole owner of East Harding on Oct. 1, when he made the last monthly payment for his partners’ stock, per the agreement they all signed in November 2009.
He declined to disclose the purchase price but said, “It was in excess of $1 million. It was in the millions.”
East and Harding were paid as employees of the general contracting company for the first five years of the deal. For the past five years, they have been paid as consultants.
All the while, Tilbury was buying the stock East and Harding had owned in a 50-50 partnership.
The arrangement was a win for everyone, the three partners said in separate interviews.
Tilbury wasn’t able to come up with the lump sum needed to buy the company, and getting a loan would have been difficult given that “construction is a high-risk industry” with fluctuating revenue.
Instead, he was able to use profits from the business to purchase it.
At the same time, East and Harding weren’t ready to quit. They needed time to introduce their longtime clients to Tilbury and let his relationships with those clients take root.
They gradually transferred their responsibilities to Tilbury and entered their Medicare-eligible years with regular income and benefits. East and Harding were in their early 60s when the agreement was signed.
‘It Was Mutual’
The deal evolved over a couple of years.
“With a business like this, you either are going to close the doors one day — work until you’re ready to quit and finish your projects, let your employees go and close the doors. Or you look for a way for the business to continue through a succession plan,” Tilbury said. “They were very interested in a succession plan, and I was interested in owning the business. So it was mutual. It’s something we talked about, on and off, for a couple of years before we did it.”
The process began with casual conversations; it then took six months of regularly scheduled meetings to work out the details, Tilbury said. It also took a professional team of attorneys, certified public accountants and insurance agents, and the plan was contingent on the company having 10 profitable years.
Tilbury has been with East Harding since 2004, and he was named president in 2006. He joined the company about a year after befriending East, who has been in business with Harding for more than 40 years. The two have been close friends even longer.
East said that for succession planning, it’s important to find the right person first, and that’s what happened in this case.
Harding agreed. Tilbury “wasn’t in construction, had no construction experience whatsoever, but Bob saw something in him that he thought might be a good fit,” Harding said. “I met Van and the more I talked to him, I realized he was so much like Bob and I. We had the same values. We believed in honesty, integrity and high ethics and hard work. We fit very well together.”
East said that when he hired Tilbury, “Frankly, we wanted somebody who was not necessarily well-versed in construction. We wanted somebody that, No. 1, had the highest integrity and was honest. And No. 2, understood customer service and communications.” He said he and Harding could teach someone about the industry, but not the soft skills that working in it requires.
‘Like a Marriage’
When asked why he wanted to buy the business, Tilbury cited his relationship with his partners first. He was seeking mentorship and got it in spades from them.
Tilbury also emphasized that having a good relationship with your partner or partners and including contingencies in your succession plan is critical to its success.
“This partnership is like a marriage. You need to like who you’re going into partnership with, and you need to be honorable and trustworthy and respect each other,” he said. “You have to talk through the good, the bad and the ugly of every scenario of what might happen, worst-case scenario.”
East agreed about the importance of discussing contingencies and figuring out what happens if a partner gets divorced, commits a crime, gets sick, disabled, killed, etc.
A good succession plan takes time, all three said, with East adding that you can’t start too early on it. “There’s a lot of companies that are coming of age, that need to do something, and the worst thing you can do is think nothing is going to happen to me and keep going on. Something will happen to you. We just don’t know when,” he said.
Tilbury, now 51, is already following that piece of advice. “It’s something I’m already starting to think about: Who’s the candidate or the candidates to be the future of East Harding after, one day when I’m no longer here? Because there’s nothing I would like more than to see this business continue forward,” he said.
In addition, Harding said, “I think a custom plan oftentimes works better than something just right off the shelf” and addressing any issues as soon as they arise is important.
“My mentor, Bill Jett, told me years ago, when I was just a pup, that if there is a turd in the bowl, it’s best to flush it right away. And as descriptive and vulgar as that is, it should be taught in all business schools, because the problem never gets any better,” he said. “You need to address it and get it taken care of as soon as possible. And we all believed in that, and we all supported each other.
“I can describe our partnership as each one of us was a leg on a three-legged stool. My partners had strengths where I was weak and vice versa. So if one of us had been weak, the stool would’ve fallen over, but we’ve stood strong for 10 years now. It’s been a great experience,” Harding said.
East was also pleased with how the deal turned out.
“I could not be happier that the company that we started — or that I started, I think, in 1974 — now it’s something that is going to go on past me and with somebody who has a different outlook on the world and can cope with the way the world is changing,” he said.