Workers become millionaires in sale of employee-owned Philadelphia insurance company
Graham Co. is sold to a national company, and its 215 worker-owners will split most of an estimated $375 million payout.
Six years after workers acquired their company from second-generation owner William A. Graham IV through an employee stock ownership plan, the 215 people who now work at Graham Co. are selling the Philadelphia-based business-insurance agency to national broker Marsh & McLennan Agency.
Graham leaders confirmed Tuesday that their board has agreed to sell.
The buyer, part of global insurance giant Marsh McLennan Cos. Inc., which is based in New York City, won’t say how much it’s paying, but industry observers say recent transactions suggest that Marsh McLennan agreed to pay five times Graham’s expected yearly sales, which works out to about $375 million.
Filtered into a retirement plan that makes the sale tax-free, the total adds up to more than $1 million per worker, even after discounting a slice that will be used to pay down debt.
“For some, it will be life-changing,” said Mike Mitchell, the firm’s 67-year-old vice chairman.
The millions won’t be split evenly. Staffers, including Graham, who is still the board chairman, are assigned shares prorated based on their responsibilities and years of service.
But no one executive owns as much as 10%, according to Mitchell and Ken Ewell, 65, Graham’s president and chief operating officer.
Still, many of the company’s long-serving employees will get a significant boost to collect more than $1 million each in their retirement plans.
“It is mind-blowing,” said Sara Kurtz, a Graham production specialist who joined the firm in 1990 and helps producers put together complex, data-rich sales pitches.
Kurtz became enthusiastic about worker ownership when the Employee Stock Ownership Plan (ESOP) was set up in 2017. She has enjoyed watching the estimated value of her shares grow modestly since then.
Yet she was floored to learn at a company meeting last month that she and her colleagues would be paid four times more than the most recent estimate of their shares’ value when the company changes hands later this year. (The shares had been amortizing over a 30-year period; with the company sold, they will vest all at once.)
How will it change her life? Kurtz has a child who plans to start college in two years, “and now I don’t have to worry how I’ll be paying for that.”
She’s also thinking of “taking a trip to Bora Bora and sitting in one of those huts over the ocean. And maybe I’ll get the Eagles’ new Kelly Green shirt.”
Long-term, she has suddenly topped her retirement savings goal. “People at the firm who are my age are all ecstatic and grateful,” said Kurtz, 54. “It’s given me peace.”
The sale price is a 63% advance (not counting inflation) over the $230 million offer Graham says he turned down from another firm in 2017, opting instead to sell his company to his colleagues.
During the same period, revenues rose 36% to $73.5 million, from $54 million.
That earlier cash offer would have been taxable — unlike Marsh McLennan’s payment to the ESOP, which holds the money tax-free for workers’ retirement, according to Phil Trem, president of MarshBerry, the Ohio consulting firm that advised Graham in both the ESOP and the sale to Marsh.
Even with the large payouts, Mitchell said he and other senior officers plan to stay on for the foreseeable future.
Graham, founded by Bill Graham’s father in 1960, focuses on business insurance and employee benefits for real estate, manufacturing, transport, health care, nonprofit, and professional services companies, and surety bonds for construction.
The firm serves more than 200 clients, many of them midsized employers such as Select Medical/NovaCare and Liberty Coca-Cola Beverages. The firm also has offices in New York and Washington.
Why Graham is selling now
According to Mitchell, even when they touted employee ownership, company leaders were always open to an attractive sale offer from a buyer who would invest in the agency, not just buy the clients and strip out costs. Selling Graham Co. “was not the goal. But things evolve,” he added.
The firm felt the pressure of the times, Mitchell said.
Though Graham has long proclaimed that its proprietary database of customer claims and information gave it an edge over rival brokers, Marsh and other national firms enjoyed a growing advantage in pricing coverage and paying claims, based on experience from many more clients and cases.
That data is easier to collect and apply, thanks to digital technologies and applications.
“It’s a tech tsunami, coming at us quickly,” Ewell said. “We worked hard on building what we call ‘Grahamalytics.’ But Marsh has the biggest data of anybody in the industry. We’re in good shape, but we have to think about where we will be in 18 months.”
Rivals such as Aon, Arthur J. Gallagher, Hub, and Willis have also been building national agent networks, said Trem, the adviser.
The Graham leaders worried that a larger agency would “smother” their painstakingly built-up operation. Marsh McLennan has a distinct approach, Ewell said: It has been buying up regional agencies since 2009 and has shown a track record of helping them get bigger once they were acquired.
He cited the example of Marsh McLennan’s Minneapolis agency, which has quadrupled in size to $100 million a year since its acquisition 12 years ago, and others from Maryland to Montana where professionals stayed on to build their firms with Marsh’s support.
Smaller agencies aren’t disappearing overnight, and Graham didn’t have to sell, Trem said. Graham’s rising sales confirm that the firm remained “incredibly competitive — they continued to invest in the firm, to provide the best services.” Still, “partnering with the world’s largest broker gives them the best of both worlds — autonomy in the local and regional markets, but with new tools and expertise.”
Marsh McLennan sees Graham as adding “significant business insurance expertise,” while its customers will be potential clients for its own employee health and benefits practice, according to Andrew Neary, chief executive of the company’s eastern U.S. region.
For her part, Kurtz, has no plans to retire early: “I’m not a sit-still type of person.”
She said colleagues see the payout as a kind of vindication.
”We’ve all worked for Graham for so long,” Kurtz said. “My dad instilled my work ethic from a young age. I put my heart and soul into things, and that fits the culture here. I always thought, ‘Put your head down, grind it out and you’ll get the reward.’ ”