Bob Sullivan Jr. and Paul Sullivan received many inquiries during the past two years about acquiring their family’s tire-and-repair shop empire, amid an industry consolidation. They turned each one down.
Instead, the Sullivan brothers decided to sell to an unsuspecting group of buyers: their 1,460 employees.
On Friday, they told their workers that the Norwell-based Sullivan Tire chain had been sold to a newly formed Employee Stock Ownership Plan. All employees who stay until the end of the year will become members, which gives them rights to a share of the company. They’ll fully vest after six years, and they can redeem their vested shares when they retire, at age 65 or later. The deal includes Sullivan Tire’s real estate: The company owns more than 40 of its 117 locations across New England.
“As we advance in age, we have to recognize the future and reimagine what we want to look like,” Paul Sullivan said. “We’ve got this big rumor mill out there: ‘When are the Sullivans going to sell out? Everybody seems to be selling out.’ ... That’s not what we want to do. We care too much about our people to turn our back on them. We want to give them a redeeming benefit.”
With this deal, Sullivan Tire becomes one of the largest ESOP-owned businesses in New England. Other prominent local companies with ESOP ownership include Cape Air, Abt Associates, and Harpoon parent Mass. Bay Brewing Co.
Joe Zaccheo, Sullivan Tire’s chief executive, said employees don’t need to kick in any of their own money, and their existing 401(k) plan with Sullivan Tire will remain intact. This, he said, would simply be an added benefit. (Employees who leave before age 65 could elect to have their balances rolled into another retirement plan over time.)
The company financed the deal using a loan from M&T Bank to buy out most of the equity held by members of the Sullivan family. The sellers also loaned the company some money to cover the gap, through warrants to be paid back over time. As the company pays down its debt, it will increase in value. Each year, the company’s market value will be calculated. ESOP participants will earn a percentage of shares based on their own compensation level.
Zaccheo will answer to the same board of directors, a group that currently includes himself, Bob and Paul Sullivan, and one outside director. (Today, that seat is held by Robert Spencer, a professor at Stonehill College.) The Sullivans promoted Zaccheo to be CEO last year as part of their succession plan. Finding a way to buy out the family members was the next step in that plan.
“The benefit of the ESOP is the current management team stands intact,” Zaccheo said. “It’s business as usual.”
The Sullivan Tire story, about how a small South Shore auto shop grew to a network of tire dealerships and garages spanning five New England states, is already well known.
In 1955, the Sullivans’ father, Bob Sullivan Sr., drove past a small tire business, Washburn Tire, that was for sale in Rockland and decided to buy it. Mary Washburn, the owner’s widow, lived next door and kept her car in the Washburn Tire garage, so the Sullivans had to move her car every day to the street, so they had room to work on their customers’ vehicles in the driveway. The first two full-time employees — immigrants from Ireland and Italy, respectively — were hired in the late 1950s.
By the time Bob Sullivan Sr. died in 1992, the business had about 25 stores. He would probably want a map to navigate the company’s network today and thank the workers in person, Paul Sullivan said, but the focus on the employees would seem quite familiar.
“It started with recognizing the value of your people and not turning your back on them,” Paul Sullivan said. “Here we are today, and we’re not going to do that.”