Why Access Electric Supply Chose Its Employees Over the Highest Bidder

Over the past five years, roughly 140 independent electrical distributors have been acquired, representing $12-13 billion in industry revenue at the time of sale. One number jumps out every time I dig into the “why”: 98% happened because the owner never built an exit strategy. No successor in the family, no management team ready to step up — just an owner who reached a point where age, and fiduciary responsibility to their own family, forced the decision.

Access Electric Supply, the Kent, Washington-based distributor, took a different path.

A Data Center Growth Story

Access Electric Supply has built a position in the complex gear side of the business — transformers, switchgear, everything from the utility feed down through the load requiring overcurrent protection. Not a broader, construction-oriented distributor. The focus is on data centers, industrial, large government, and utility work, and it’s paid off: the company jumped from 85th to 68th on Electrical Wholesaling’s Top 100 this year and has placed in the top five nationally for sales-per-employee two years running.

Data center work now represents more than 50% of the business. AES had already begun expanding in that market before President Brian Raegen joined the company, which at the time had about seven employees and remained heavily focused on Boeing and industrial work. “AES already had a foundation in data centers,” Raegen said. “I brought additional experience and a real hunger to pursue the opportunity, but the growth has come from building the right team and working together toward a common goal.” His previous experience with manufacturers such as Siemens and Schneider helped shape the company’s approach. “I had seen what focused, specialized distributors could accomplish when they understood the market, moved quickly, and stayed close to their customers. We believed AES had the people and capabilities to do the same.”

Betting on Colocation, Not Hyperscale

Rather than chase the hyperscalers directly, the company has stayed focused on colocation. “I know the hyperscalers can swallow you up really quickly, and I didn’t want to get into that,” Raegen said. Almost all of their project business ships direct, drop-shipped nationally, working with the local rep in whatever territory the job lands in.

The ESOP Decision

Access Electric Supply weighed the alternatives before choosing to become employee-owned. “We weren’t too keen on the strategic buyer alternative for various reasons, but private equity and ESOP was something we explored for a while. We talked to many private equity people, went down pretty far with one. But ultimately, the ESOP model seemed like the best long-term fit for us,” Raegen said.

In consulting with distributors and manufacturer reps Channel Marketing Group, for strategic engagements, periodically gets involved in long-term planning, succession planning, and exit planning. We discuss strategic vs PE vs MBO (remember those?) vs ESOPs. ESOPs and succession planning models require planning, timing and are strategic initiatives whereas PE has a different thought process (whether sell and go or sell, stay, second bite) and ESOPs are a strategic thought process grounded in trust, confidence, and long-term prospects. ESOPs work when they are chosen from a position of strength, not desperation / a need to sell or a willingness to “take the highest offer and ‘go'”Brian shared he isn’t going anywhere. “I still plan to be involved for a long time. I don’t know if I’ll ever retire, as long as I like it, and I’ve always liked the electrical industry.”

Why Employees Over Private Equity

“It was mainly baked around the employees. We could sell to private equity and help fatten somebody else’s pockets that already has a ton of money, or the people that helped develop this company could share in that second bite of the apple,” Raegen said. “It really wasn’t a hard decision. It was unanimous across the leadership team. Wasn’t the highest bid by any means, but it was what we thought was right for the company, right for the people, and right for us long term.”

Structuring a 60/40 Deal

The company structured the deal as 60% ESOP ownership, with existing ownership retaining 40% — a full buyout would have meant too much debt on the business. “Long term we do plan to [go to 100%], once we get this first tranche paid off, but because of the debt requirement we settled on 60% as more manageable.”

This is an interesting approach and highlights that not every ESOP is 100% an ESOP. I know one that did 30%/70% (employees to owner), another is 43%/57%, and others are 100% or close to it. Much comes down to valuation, willingness / ability to absorb debt, leadership / ownership plan for remaining in the business and more.

And just because a company moves to an ESOP model doesn’t mean that there are not vehicles to reward top performers differently or have differing “incentives.” This is where an ESOP specialist can assist in educating about warrants, options, etc.

Getting the Structure Right

Access Electric Supply closed the deal with 19 employees; near the edge of the range most people associate with ERISA’s structural requirements. “There is no magic number, but you need to be profitable enough to afford the ESOP charges, because it’s not a cheap transaction,” Raegen said. The company also converted from an S-Corp to a C-corp for more room under 409(p) ownership-concentration rules, with a plan to convert back once the current debt tranche is retired.

Choosing a Partner and Financing the Deal

Perpetuate Capital brokered the transaction — a connection that came, notably, through an MBA class presentation. “Bill over at Perpetuate was awesome. Very knowledgeable on ESOPs, had all the connections to help recommend us for different aspects of the business.” Financing took legwork: Perpetuate’s team shopped the deal to roughly 20 banks before the company settled on three lenders.

The Cost of Doing It Right

The transition also forced financial discipline. Access Electric Supply hired a full-time financial controller, brought on a new accounting firm, and added an independent board member with prior ESOP experience. “It did require us to become much more financially savvy than we had run in the past, which was a good thing for the business,” Raegen said. On cost: “Our initial costs were over half a million dollars to get the whole deal done. So, the ongoing cost of $80,000 – 100,000 a year is minimal compared to that.” His philosophy was to bring that function in-house rather than default to outsourcing, deliberately avoiding what he called the private-equity playbook of “pouring rocket fuel” on overhead.

Culture, Growth, and What Comes Next

Because of deal confidentiality, the broader team wasn’t looped in until close to closing. The reaction, unsurprisingly for a concept most of the industry doesn’t fully understand, was mixed — though a few employees with prior ESOP exposure at other companies helped translate it for the rest. Raegen is realistic about the timeline for a cultural payoff: “We believe it’ll unify the team more, get them more excited to do a better job for our customers — but it’ll take time.”

Paying Down Debt, Then Looking to Grow Again

Near term, the company is focused on paying down debt and building cash reserves. Longer term, Raegen — who also leads strategy — is eyeing a services-space acquisition, alongside the goal of moving to 100% ESOP ownership. He’s not ruling out a future sale either, if the right opportunity came along and the ESOP trust and employees were behind it. Worth noting, employee-owned distributors that do get acquired in this industry have tended to command valuations well above standard multiples, a reflection of how financially disciplined ESOP-run companies become by necessity.

What This Means for Reps and the Channel

Access Electric Supply is also a member of AD, which should reassure the independent reps in the industry — a conversion like this locks in long-term company stability and keeps the same leadership team, and relationships, in place.

Advice for the Channel

Raegen’s advice to other distributors: “Take care of your employees, because they’re the ones that are growing your company. The employees and customers are at the forefront of every decision that we make.” On AI and new technology, he’s not worried about the fundamentals: “The complex distribution stuff is always going to be a people-to-people business. We’ll use the tools available, but it’s still going to be people to people to do multimillion-dollar transactions.”

1. Want a deeper primer on how ESOPs work, the National Center for Employee Ownership is a good resource.
2. If you are seeking to learn more, reach out and I can direct you to some resources and share some of what I’ve learned with some clients (although none pulled the trigger for various reasons.)
3. The key to going to an ESOP is time … they are most valuable when current ownership becomes a driver, a mentor and a coach and is planning for the future.