Photo by Jorge Salgado

Can a Private Equity Model Build Wealth for Workers of Color?

An El Paso landscaping company is one of the first employee-ownership conversions facilitated by a new Black-led private equity fund.

Story by Oscar Perry Abello

Photography by Jorge Salgado

Published on

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If you’re looking for work in El Paso, Texas, and you don’t mind being out in the sun digging trenches, planting trees and succulents, lifting and spreading rock, or moving around other heavy materials in 100-degree temperatures, Joe Aguilar definitely has a job for you at Accent Landscape Contractors.

“We’ve got about 15 projects going right now,” Aguilar says. “In the last eight or nine years, it’s been up, and up, and up. I can’t remember the last time we had any layoffs.”

Aguilar currently oversees around 135 crew members, and it’s been a struggle during the pandemic to get those numbers up to where he thinks they should be based on the workload — not to mention anticipating even more growth in the months and years ahead. The company already lays claim to being the largest landscaping contractor in El Paso.

Accent’s headquarters sit in the shadow of the historic Southern Pacific Railroad Bridge, going over the Rio Grande, just north of where the river becomes the international border with Mexico. Most job seekers apply in person. They fill out an application and, with very rare exceptions, they’re asked to come back the next day at 6:30 a.m. That’s when Aguilar or one of his project managers gives them a hard hat, a safety vest, goes over safety guidelines, and tells the new crew members which of the current job sites they’ve been assigned to work.

Aguilar recently added one more item to the new employee briefing: In May 2022, the company became 100% employee-owned through an “Employee Stock Ownership Plan,” or ESOP. It means that including wages, each full-time employee at Accent automatically gains an ownership share in the business that grows in value over time, which they can cash out after working at the company for a certain number of years.

Accent Landscape Contractors is one of the first employee-ownership conversions facilitated by Apis & Heritage Capital Partners, a new Black-led private equity fund that flips the typical private equity model on its head — with every acquisition Apis & Heritage facilitates, the existing company becomes 100% employee-owned through an ESOP.

Apis & Heritage has raised $30 million from a handful of mission-driven investors, and aims to facilitate 8-10 employee-ownership conversions over the next five years, benefiting an estimated 500 employees.

But the Apis & Heritage founders have even larger aspirations. They want to help convince thousands and maybe millions of small business owners that employee-ownership conversions don’t have to be difficult or expensive as they think it might be, while also convincing investors that there is an overlap of reasonable, reliable financial returns with real benefits for workers including wealth creation for those typically excluded because of race or gender from opportunities to build wealth through business ownership.

“In the long term I think it’s going to help us keep employees,” says Aguilar, who started out as a job estimator with the company in 1989, and was promoted from vice president to president after the conversion to employee ownership. “This is like a savings account that builds up over time but they don’t actually have to put any money into it. So in that respect, I was really excited.”

Employee Ownership by the Numbers

From one perspective, employee-ownership is already the dominant form of business ownership in the U.S. economy. Out of more than 32 million businesses in the U.S., 26 million are sole proprietorships whose owners are the only workers in the business.

But of the 6 million U.S. businesses that have at least one employee besides the owner, the most recent estimates suggest only 7,500 businesses at most have some form of employee ownership in place.

As many as a thousand of those are worker-owned cooperatives, with roughly 10,000 workers in total, according to the 2021 “State of the Sector” report, produced jointly by the U.S. Federation of Worker Cooperatives and the Democracy at Work Institute, a nonprofit that supports democratic worker-ownership of businesses across the country.

Worker-owned cooperatives are considered a more democratic option, with workers owning 100% of the company and actively voting in management decisions or voting to elect board members from among their ranks to make key decisions, like setting wages and benefits or selecting executive officers. Some ESOP-owned companies can have elements of workplace democracy, but many companies set up ESOPs mainly as part of retirement benefits for workers, without any meaningful worker role in company decision-making.

The bulk of employee ownership today is through an ESOP. Around 6,500 companies currently have an ESOP in place, with around 10 million current employees and another 4 million who have ESOP ownership shares from a previous employer that haven’t yet been cashed out.

(Photo by Jorge Salgado)

The Democracy at Work Institute is known primarily for supporting worker-owned cooperatives. But seeing an opportunity to expand a worker-centered movement, the institute made a risky decision in 2018 to incubate a new private equity fund that would make use of the ESOP ownership form. It dedicated a full-time staffer and brought in a consultant to build the fund, and drew on its existing relationships with funders to bring them in as investors to the fund, which was eventually dubbed Apis & Heritage Capital Partners.

After each employee acquisition, the Democracy at Work Institute plans to spend time educating employees on creating and operating a more democratic workplace within each of the Apis & Heritage portfolio companies. In addition, as part of the conversion to employee-ownership, the company must have at least one worker on its board going forward.

“I think it’s critical to make the distinction,” says Melissa Hoover, executive director at the Democracy at Work Institute. “These are not worker co-ops, but they’re excellent businesses, and they deliver real benefits to their workforces. We just have seen so much of this from small business owners that want to do some [workplace democracy] but not all, or they want to do worker ownership and community ownership. I think we’re in this period of really fertile experimentation with the form that, as long as it remains rooted in workers’ benefits and values, then we’re good. We’re interested in that expansion.”

There’s evidence that employee-ownership does lead to meaningful changes in the economic well-being for employees.

Workers who were employee-owners had 92% higher median household wealth, 33% higher income from wages, and 53% longer median job tenure relative to workers who are not employee-owners, according to a 2017 study conducted by the National Center for Employee Ownership, a nonprofit created in 1981 to promote ESOPs and other employee-ownership forms. The effect was slightly muted for employee-owners of color — but as a group, employee owners of color still received 79% greater net household wealth and 30% higher income from wages. Median tenure in their current job was 36% greater than for non-employee-owners of color.

“There hasn’t been a really strong effort of connecting the dots between wealth inequality and ESOPs,” says Nancy Wiefek, director of research at NCEO. “Employee-ownership is just one of the many ways we could address this huge issue of wealth inequality for workers and especially workers of color.”

Private Equity Gets in on the Action

Interest and activity around employee-ownership has ebbed and flowed over time, drawing supporters from all over the political and economic spectrum. During the “greed is good” days of the mid-1980s, the New York Times reported on a wave of ESOPs created to fend-off buyouts by big corporate raiders — the thinking at the time was that employee-owners through an ESOP would vote against any Wall Street attempt to take over their firm. Over the long run, the corporate raiders prevailed.

In more recent days, some on Wall Street have become eager to show they’re a friend to workers. In April 2022, a consortium of 60 supporters that included several private equity firms made a splash when the Wall Street Journal first reported the creation of Ownership Works, a new nonprofit to support employee ownership models at more companies.

One of those private equity firms was KKR, whose CEO donated $10 million to help start Ownership Works. KKR followed on the heels of the Ownership Works announcement with its own May 2022 news that it had generated millions in employee wealth through the sale of portfolio company C.H.I. Overhead Doors, a garage door manufacturer.

The private equity firm acquired C.H.I. Overhead doors in 2015. As part of the acquisition, KKR granted a small percentage of ownership shares in C.H.I. to each of the manufacturer’s 800 employees — technically not an ESOP, but similar in some respects. Each employee’s exact percentage of shares was based on how long they had worked at the company.

Then, in the May 2022 transaction valued at $3 billion, KKR sold C.H.I. Overhead Doors to Nucor Corporation, a steel producer based in Charlotte, North Carolina. The employees’ cut of the sale price was just $140 million, or an average payout of $175,000 per employee, with longer-tenured employees receiving much more than that and newer employees receiving much less. The rest of the $3 billion went to KKR, and as a result of the sale, the 800 former C.H.I. employees no longer own any shares in the combined company.

But the vast majority of businesses aren’t operating at the scale of that transaction. Out of the 6 million firms with at least one employee besides the owner, only 23,000 have 500 or more employees.

For its employee-ownership conversion portfolio, Apis & Heritage is focusing on the roughly 230,000 firms that have between 40 and 500 employees, starting with the businesses where at least a third of the employees are people of color.

“Essentially what you’re talking about are [merger and acquisition] transactions, so you need to be competitive with all the other options people have,” says Todd Leverette, founding partner at Apis & Heritage. “One of the goals of Apis & Heritage is to make an owner selling their business to workers as easy as selling to private equity or some other strategic buyer.”

“It’s Really All About Relationships”

Leverette was born and raised in Northeast Ohio, or what he likes to call “LeBron country.” After graduating from Morehouse College, he ended up at a Wall Street bank during the Great Recession, where he picked up some of the Wall Street tools like financing for mergers and acquisitions. From there he went to get dual graduate degrees in law and business from Columbia University, after which he started looking for more meaningful work.

“I heard my mom and dad’s voices,” Leverette says. “My parents were children of the Civil Rights Era, so growing up they always asked the question, ‘what are you doing for your community, what are you doing for the world, not just for yourself?’”

Recalling that many of his civically-minded Morehouse classmates seem to come from Detroit, he started poking around for interesting Detroit job listings, and eventually landed one at the Center for Community-Based Enterprise, founded in 2007 by employee-ownership attorney Deb Olson. The job was to promote employee ownership primarily to larger companies in Michigan.

“I always tell people who get into the employee ownership world, the rabbit hole goes really deep, and once you get in there, don’t be surprised if you spend the rest of your life helping use these tools to figure out some very real problems,” Leverette says. “For me, the employee ownership world was this amazing Venn diagram of the legal intricacies and complications, real business practices, and also the social justice side going back to the Civil Rights movement which was a lot about increasing economic opportunity.”

That job led directly into the Democracy at Work Institute hiring Leverette in 2017 to lead its newly launched Legacy Business Initiative, a program to promote employee-ownership conversions to business owners across the country. And he had some great conversations with business owners all over the country. But they weren’t always necessarily ready to sell. It’s a significant, life-changing event for someone who may have spent a lifetime building a business that’s become a huge part of their personal identity.

“Working in this space, you see a lot of time and energy spent sitting with folks who don’t know if they want to retire yet, or maybe you are talking to business owners who have the right profile, but haven’t necessarily crossed that emotional and mental hurdle of saying, ‘okay, now it’s time,’” Leverette says.

And yet, thousands of businesses definitely change hands every year. Estimates range widely. There are 10,000 businesses sold every year as listed on, a platform for listing small businesses up for sale nationwide. NerdWallet claims more than 500,000 small businesses change hands every year, a number the site expects to skyrocket as millions of baby boomer generation business owners retire over the next decade.

It’s those businesses that became the starting point for Apis & Heritage. Like any conventional private equity firm, the fund is combing through thousands of for-sale listings looking for small businesses that fit its parameters — at least 40 employees, in sectors or geographies where workers are more likely to be people of color or low-wage workers. It’s calling up brokers who specialize in small business sales, and providing them with its parameters. It’s going out and competing directly against conventional private equity buyers to acquire businesses whose owners are already on the way to selling.

“Somebody who’s working with a broker, an investment banker, and letting them go through their books and do all that sort of stuff, they’re ready. They’re looking for something in the next six months or a year,” Leverette says. “You start to build relationships with these [brokers and investment bankers] to see what they’ve got in the works. It’s really all about relationships.”

The Buyout That Almost Wasn’t

The employee-ownership buyout of Accent Landscape Contractors very nearly didn’t happen. Cameron Stevens started the company in the early 1980s, while he was still studying real estate finance as an undergraduate at Texas Tech in nearby Lubbock. He found clients by going around the area knocking on doors and leaving fliers at properties where he could see the landscaping wasn’t in the greatest shape.

By the time Stevens graduated, in 1981, the real estate industry wasn’t exactly hiring. In order to fight against high inflation that had lasted a decade, the Federal Reserve had pushed interest rates into the double digits, discouraging real estate investment and intentionally causing a recession. With an economy in bad shape, at least the landscaping business was paying the bills. By the end of the 1980s, Accent was doing exclusively commercial landscaping all over western Texas and New Mexico, for clients including hotels, local parks and transportation departments, and eventually even Stevens’ alma mater.

In 1996, Stevens and his family moved to Albuquerque, where he opened up a second office, leaving Joe Aguilar in charge back in El Paso.

“I was around when [Stevens] got married, when he started having kids, and now he’s got grandkids,” Aguilar says. “We’ve gotten old together.”

By the time Stevens called up a broker to sell the El Paso portion of his business, his wife had long since made it known she wanted him to sell it.

“She’s been wanting me out of this thing,” Stevens says. “She calls it the other woman in our lives.”

According to Stevens, the broker he hired fielded hundreds of inquiries from possible suitors to acquire Accent’s El Paso office. Apis & Heritage was not one of them, initially. Either a typo or a miscommunication resulted in the broker believing Accent only had around 20 employees — not big enough for Apis & Heritage — when in reality it had closer to 200 employees between its two offices.

Stevens’ best hope at the outset was to sell to a competitor, maybe someone in the southwest if not locally in El Paso. He worried what might happen to his employees if he sold to a conventional “M&A” firm who might turn around and re-sell the company for big profit to someone even bigger in a few years.

But during one of the 20 or so Zoom interviews with potential buyers, Stevens mentioned having almost 200 employees, setting off a light bulb for the broker.

“She called me back about an hour later and said, ‘hey, well, how many [of Accent’s employees] are minority?’ and I said, well, 98.9%,” Stevens says. “Thirty minutes later she calls back and says we got another interview tomorrow.”

The interview was with Apis & Heritage.

“I got off that phone call the next day and I was like, ‘I’m doing it,’” Stevens says. “Because that’s what I was looking for, somebody to help get me out to do something good for my employees. It was a godsend.”

How Apis & Heritage Sweetens Their Deals

It may not always be possible for ESOP-led buyouts to compete with private equity on price alone, but there are other ways that funds like Apis & Heritage can sweeten the deal for small business owners.

ESOPs are highly regulated by the Department of Labor, under the Employee Retirement Income Security Act of 1974, the same law that governs pension plans and 401(k) retirement plans. As a result, there are a lot of upfront costs to establishing an ESOP, including audits, a feasibility study, a valuation of the business and bringing in a key entity called an ESOP trustee that is part of the legal structure of every ESOP.

All those upfront costs can cause sticker shock, discouraging otherwise amenable small business owners from going the ESOP buyout route even with the significant tax benefits promised to them at the end of the rainbow. Those upfront ESOP costs are one of the big reasons why more companies don’t have ESOPs at all.

“It’s just a reality of the situation, if you’re going to get tax benefits from the government, you’re going to have to jump through lots of hoops,” says Wiefek.

That’s why Apis & Heritage offers to cover all of those upfront costs as part of its ESOP buyout model.

It’s more than just the money, it’s also about certainty. Understandably, a small business owner on their own may not want to start paying for some of those upfront costs only to find out partway through the process that it won’t be financially feasible to sell their business to their employees through an ESOP. Apis & Heritage also doesn’t want to spend those costs unless it is certain that an ESOP will be possible in any instance. So the fund conducts a thorough analysis before initiating those more intrusive steps in the process, and it can approach the seller saying it is already confident that the business is a good fit for an ESOP.

(Photo by Jorge Salgado)

Ultimately, Stevens says Apis & Heritage’s offer for Accent’s El Paso portion wasn’t the highest bid he received. But it was obvious to him what was the right thing to do. The fund doesn’t expect every small business owner it deals with to do what Stevens did and leave some money on the table for the sake of his employees and his legacy.

“We knew being dependent on altruistic owners wasn’t going to scale this thing up,” Leverette says. “We believe in getting fair value for your business, for your company. We’re not trying to get a steal, but we also don’t believe in overpaying.”

Using the Private Equity Force for Good

One of the big reasons to use a private equity model is to open the door to much larger pools of potential funding for ESOP acquisitions of existing businesses.

And Apis & Heritage isn’t alone – the nonprofit Transform Finance published a 2019 paper supporting the idea and listing several early examples, including the Fund for Employee Ownership (which we’ve previously covered) and the initiative that eventually spawned Apis & Heritage. There’s also the Main Street Phoenix Project, which is also inspired by private equity but taking a slightly different tack focusing on just one sector, restaurants and coffee shops.

Similar to a typical private equity firm, Apis & Heritage has raised a $30 million fund from a range of investors. Typical private equity investors include pension funds, 401(k) retirement plans, insurance companies, university endowments, foundations and wealthy individuals. Private equity firms today have a total of $6.3 trillion under management, according to McKinsey. More investors flock to them every year, chasing the high returns they promise under their model.

In a typical private equity acquisition, after negotiating a sale price with the owner, the private equity fund makes an investment in the company, and then it arranges for another loan to the company from a conventional bank. The collateral for the bank loan is essentially the company itself — its cashflows as well as any property or equipment including vehicles that the company owns. The company uses the cash proceeds from the loan and the private equity fund investment to buy out the existing owner or owners. Some of the most infamous private equity acquisitions were those that took well-known, publicly traded companies out of the stock market entirely.

Suddenly the private equity fund is left as the only owner of the company. Then it spends the next period of time improving the sale value of the company by either investing in its growth or cutting costs, perhaps by laying off hundreds or thousands of employees. Eventually it finds another buyer who has the cash or borrows the cash to buy out the private equity fund, usually at a multiple of the private equity fund’s original investment in the company. The profits for the private equity fund and its investors come from the sale price plus any “management fees” the private equity fund might charge the company along the way, minus the original investment, minus any additional investments the fund made in the company.

Apis & Heritage wants to redirect at least some of that investor interest in private equity into transactions that are more likely to benefit workers instead of downsizing them. Like a typical private equity acquisition, it also arranges for a conventional bank loan to the company to cover part of the sale price. For Accent, the loan came from Woodforest National Bank, based north of Houston. But instead of buying an ownership share in the companies it lines up for ESOP acquisition, Apis & Heritage only makes a loan to the company. The proceeds of the two loans get used to buy out the existing owner, and all of the ownership shares go to the ESOP.

Over time, along with education and training support from the Democracy at Work Institute, Apis & Heritage anticipates each portfolio company will grow and eventually be able to refinance the conventional bank loan with a slightly or moderately larger loan or second loan, the proceeds of which it can use to repay the loan from Apis & Heritage. The only profits for Apis & Heritage and its investors come from the repayment of the fund’s original loan to the company. It’s likely to produce lower returns than many private equity funds offer with their more predatory models, but it’s also a lower risk, using debt instead of taking an ownership share in portfolio companies.

Leverette is confident that there would be plenty of investor interest in copying the Apis & Heritage model, once it has time to prove it can generate reliable returns.

“Our belief is traditional institutional investors — pension funds, insurance companies — who move billions of dollars every year, they should, they could and they will begin to allocate more to this asset class of employee-ownership,” Leverette says. “The risk-return is where it should be to attract those investors.”

It’s also possible that, through legislation like the proposed “Stop Wall Street Looting Act,” the more predatory forms of private equity acquisition could be outlawed, leaving more worker-friendly models like Apis & Heritage and the others as an attractive option for investors still interested in private equity funds.

In one sense, Apis & Heritage has already broken through. Although most of its first investors are foundations that are interested in addressing racial injustice by generating wealth for workers of color, some of those foundations consider their investment in the fund to be part of their endowment. In other words, instead of lumping in Apis & Heritage with their grantmaking and program work, they lump Apis & Heritage in with the stocks, bonds and other private equity funds in the investment portfolios that provide the funding for foundation grants, programs and operations.

Good News for Accent Employees

On May 12, Aguilar told his crews to stop work an hour early — two o’clock instead of the usual three o’clock in the afternoon. He called them in for a company-wide meeting at Accent’s El Paso headquarters. They even brought in an English-Spanish translation service for the meeting.

Stevens had come down from Albuquerque to tell them he’d sold the company — to all of them.

“It was kind of bittersweet,” Stevens says. “But, like I told them, you know, it’s yours now, don’t disappoint me, I’ll come back and kick your ass.”

For pretty much everyone besides Aguilar and the company’s accountant Elida Franco, it was the first they’d heard about any of it.

“We started off the meeting with the announcement that nothing is going to change and everybody still has their jobs,” Aguilar says. “It took a while for people to absorb it. Some of the older guys who have been with us for a while, our superintendents and foremen, were a little surprised. After a little while people started asking questions and if I couldn’t answer them I wrote them down.”

Aguilar will be bringing up that list of questions on Tuesday, as Apis & Heritage and Democracy at Work Institute start a two-day training session with Accent’s new owners to begin the process of instilling a democratic ownership culture at the company.

But there’s one question Aguilar can answer easily – how much do employees have to put in for an ownership share? His answer is always none, no money at all. It’s a benefit of working at Accent.

“The strength of an ESOP is you’re not putting the workers at risk to buy anything,” says Wiefek. “The feeling of empowerment from financial security, in people’s day to day lives that can be an enormous benefit to them, the feeling that they matter. I think it’s very important that workers have a way to secure their retirement without having to buy a business themselves.”

One of the facts that struck Aguilar over the course of the process, was that more than 40% of Black and Hispanic households report having no retirement savings at all, along with a quarter of white households. He’s excited that his coworkers, now co-owners, will have something they can walk away from the company with, if they work there long enough. In the short-term, he’s also feeling a lot better about recruiting new employees.

“In the past couple weeks we’ve had a little surge and hired about 12 people and all of them showed up and stayed at this point,” Aguilar says. “At this point, I’m not sure if being employee-owned has made a real difference as to why they’re here, but once we get down to the brass tacks as to what this means, I think they’ll be just as excited.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi.

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Oscar is Next City's senior economic justice correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha and Fast Company.

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Jorge Salgado is a photographer in El Paso, Texas.

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