Southampton, Pa. — As it reaches 65 years in business this year, NewAge Industries also has another reason to celebrate. It became fully owned by its employees through its Employee Stock Ownership Plan.
The company, which manufactures plastic and rubber tubing, started down the path to employee ownership through its CEO Ken Baker in 2006. But Baker learned about using ESOPs to provide for his employees years earlier, he said.
NewAge was started by Ray Baker, Ken's father, in 1954 as a distributorship for metal hardness testing equipment imported from places such as Italy and Switzerland.
"As a new company, he was really trying to find almost anything to sell," Baker said.
During his travels in England, he ran into a business owner making braided PVC tubing, who was looking for a U.S. distributor. That started NewAge's interest in plastics.
"One thing led to another, and we added more and more lines, not only from England but from Italy and then the U.S. as well," Baker said. "We were a master distributor of tubing and hose until 1990, and that's when we got into manufacturing."
Growing up alongside the fledgling company was just a part of family life for Baker, who got his "first job" at 6 years old, folding literature and stuffing envelopes for the company, he said.
"There wasn't a lot of difference between the family and the business, way back when," Baker said. "My mother was the advertising manager, my father ran it. My brother was involved in the business. When I was in high school, I was the janitor for all four years."
After leaving college, Baker worked in a marketing communication company, and then came back to NewAge in 1985 to run the plastics group. By 1996, he bought out his brother's share of the company, and in 1998, he bought out his father.
Some of NewAge's customers had started requesting that they make their own products, and at the same time, the British sterling pound, which is what was being used to buy tubing in England, "went through the roof," Baker said. Costs for products rose quickly, along with the costs for shipping through steamship lines. As one thing led to another, the company looked into developing its own products.
He worked with his employees to backward-integrate NewAge's first extrusion line in 1998, a cold extrusion line that could do braided PVC and polyurethane tubing. NewAge grew that business and expanded into high-purity silicone tubing in 2000, starting its AdvantaPure business. Now, the firm has nine extrusion lines and about 20 molding presses in its 244,000-sq.-ft. building, with about 170 employees.
Planting the seeds
The seeds for NewAge's future as an ESOP were initially planted back in the '80s, when Baker received a piece of literature about employee ownership. The concept immediately resonated with him. While the company already was sharing profits through a gain sharing program, he wanted to take it further to develop committed, involved employees.
"I wanted a high-performance team. I wanted people who were really devoted to the company. I didn't want people just punching the clock and that's it," he said.
He flew to Chicago for a two-day seminar on the process and how to implement it. His father was not supportive of the idea, so Baker had to wait until he was in charge to change direction. He ended up having to wait a little longer after he got control, because of debt from the buyouts and the purchase of the company's current building. But he was committed to showing his employees he meant his promise.
"So I decided to print a futuristic newsletter to the employees that was dated 2006, though it was really 2000," Baker said. "That futuristic newsletter said some of the things that we were going to be growing into at the time. A couple of the things never came true. But the one thing which was the highlight was that I was going to sell 30 percent of the company to the employees in 2006. And that's exactly what I did."
Starting an ESOP was transformative for NewAge, Baker said. Employees could view the company as their own, and could directly see how their actions could develop wealth for themselves and their team.
"It changes your way of looking at work. I think we need more of that in the U.S.," Baker said. "It's counter to what's happening with private equity, which is buying companies, wringing all the cash out of it, and many times ruining the company. Then re-selling it in three to five years and not really caring about employees, not caring about the company, not really caring about anything but the cash they get out of the company. I'll submit to you, an ESOP is the best business model out there. It's shared capitalism."
Since the change, turnover has stayed about or below 10 percent, with white collar jobs showing almost no turnover, Baker said. Some employees have reached 25 years with the company. He sold another 10 percent of the company to employees in 2013, then another 9 percent in 2016. Doing the transfer in smaller pieces allowed him to make the change while still maintaining control of the company. Since the program's inception, NewAge's share price has increased by 975 percent. This year, incoming orders are head of last year by about 70 percent, and sales are ahead by about 40 percent. Its AdvantaPure line focuses on pharmaceutical and biotech companies, and interest has continued to increase as those companies shift over to single-use systems.
"We are in the right space," Baker said. "We are riding that wave. We are also blessed with not having any allocations of our raw material, which is silicone gum rubber."
In the next five years, Baker would like to see NewAge build a second plant, though those plans are in the extremely early stages, he said. The firm also has more than 20 open jobs and is looking at growth markets in food and beverage with its new BrewSavor product line of hoses for home craft brewing.
"That's going to be our next big thing, servicing the craft brew market and home brew market and dispensing beer market," Baker said. "I don't think anybody is really looking at it seriously from a scientific and technical standpoint. We're really going to be looking at it, making sure that the brew masters' vision doesn't get distorted by the taste of the tubing and hose."
Baker also started a nonprofit to educate employees and company owners about ESOP programs, the Pennsylvania Center for Employee Ownership. The group, which has two employees, provides seminars and webinars and works with the state government, Baker said.
It works with industrial and economic development centers to promote ESOPs, and has seen the growth of those programs throughout the state since. He's also been involved with the Employee Ownership Expansion Network, which is taking the ESOP model to other states.
"We want to spread this across the whole country," Baker said. "Some (company owners) are getting of age, and they think they have to sell to a private equity, large company or their competitor, and all three of those options kind of turn their stomach a bit. But they don't know this option is out there."