TAYLOR GUITARS TRANSFERS FULL OWNERSHIP TO EMPLOYEES
Founders of El Cajon instrument manufacturer say they didn’t want to sell their company to a private equity firm
Taylor Guitars, the El Cajon company whose high-end instruments are played by such stars as Taylor Swift, Zac Brown Band and Jason Mraz, is making headlines, but not with a new instrument.
On Monday, Taylor co-founders Bob Taylor and Kurt Listug announced they had transferred complete ownership of the company to its nearly 1,200 employees. The Employee Stock Ownership Plan, or ESOP, marks an unprecedented new chapter for the 47-year-old company, which in 2019 manufactured 170,000 guitars and had worldwide revenues of $122.4 million.
In April 2020, Taylor was ranked as North America’s 15th-largest supplier of instruments in an annual industry study by Music Trades. Taylor’s workforce is spread out across factories in El Cajon and Tecate, at its European distribution center in the Netherlands and at its African ebony farm center in Cameroon, although laws in Cameroon will prevent those employees from participating in the ESOP.
Taylor’s move makes it one of a very small number of music instrument companies to transfer full ownership to their employees.
“I don’t think ESOPs are right for every company,” Listug, the company’s CEO, told the UnionTribune on Monday afternoon. He spoke during a joint phone interview with Taylor and master guitar builder Andy Powers, who became
a co-owner of Taylor in 2019.
“But an ESOP is good for people who want to stay involved with their company,” Listug, 68, continued. “And it’s good for people who care about their business and care about helping their employees grow their wealth. As far as we know, this is the first time an ESOP has been shared with workers at a company in Mexico. Our workers there can really use the (financial) help.”
Taylor, 66, agreed, adding: “All our employees love working to better the company, so we don’t have to have a culture change here to make a successful ESOP.”
Listug and Taylor both stressed that maintaining Taylor’s independence was a key factor in their decision. An ESOP is a type of taxqualified defined contribution plan, through which employees receive a retirement benefit linked to the company’s future equity value. As with an IRA or a 401(k) plan, ESOP shareholders do not pay income taxes on any domestic-derived income until they retire or if they make a pre-retirement withdrawal.
“Kurt and I have always
tried to plan ahead at this company,” Taylor said.
“From the time we were really young, we knew we would get old and either retire or die. For the past 10 or 12 years, we’ve been wondering, ‘How do we create a succession plan?’ The choices we thought of — including selling to a private equity company or bringing in a strategic partner — didn’t sit well with us.
“About seven years ago, Kurt began to look into ESOPs and the structures of them. He got excited about them, and an ESOP is right up my alley as well, so we really want this to work.”
The announcement of
the ESOP comes at a time when Taylor has unprecedented demand for its meticulously crafted instruments, with 125,000 guitars now on order. On a single day last month, Listug said, the company received orders totaling $17.4 million.
“We had things we wanted to accomplish before we pulled the trigger on the ESOP,” Listug continued.
“We wanted to pay off all of the company’s loans for our Tecate factory, the distribution center we created in Amsterdam 10 years ago, our ebony center in Africa, and other loans. And we accomplished that at the end of 2020, which was our goal,
although when COVID-19 hit and our plans got derailed, we thought there would be no way we could do it. But we did.”
Taylor and Listug both spoke with palpable passion about their homegrown company, which they cofounded in Lemon Grove in 1974 and gradually built into one of the world’s most prestigious guitar companies.
They noted that no changes will be made to their company’s management structure, operations policies or practices. While Listug has delegated many of his daily duties and plans to do more work remotely online, neither he nor Taylor plans to leave the company they built and love anytime soon.
“Guitar companies last forever,” Listug said. “Even if you shut down, someone else will buy your company name and start it up again. So, you better hold on very tightly.”
“I have a joy in being here,” added Taylor, who said the company’s employees were similarly joyful after today’s ESOP announcement. “They were like: ‘This is wonderful! We don’t understand what it means yet, but it’s wonderful.’ ”