Last year, one Delafield small business became the first salon and spa in Wisconsin – and likely among the few in the U.S. – to adopt an employee stock ownership plan, or ESOP.
The move transitioned ownership of Anton’s Salon & MSpa from its two longtime proprietors, husband-and-wife duo Kurt and Diane Hampton, to its roughly 70 employee shareholders, who are now tasked with stewarding the nearly 50-year-old business into its third generation and beyond.
As a business succession strategy, ESOPs are most common in high-grossing industries like manufacturing and professional services – not so much in the service sector where turnover tends to be high and margins tight. But the ESOP route was the right one for Anton’s, which has maintained a profitable business serving the affluent Lake Country communities for decades.
The Hamptons purchased Anton’s Salon in 1990 from Anton Bova, who founded the business in the 1960s in Pewaukee and later opened a second location in downtown Oconomowoc. They both worked for Bova in the 1980s as hairdressers right out of beauty school. In 2000, the Hamptons relocated the Oconomowoc salon to Delafield, taking over an additional 4,000 square feet of space to also open a spa.
Now spanning 7,000 square feet, Anton’s corner storefront has since been remodeled or expanded three separate times to keep up with customer demand and ever-evolving beauty trends. In the early 2010s, Anton’s spa transitioned to a medical spa, shifting away from standard facials and massages to focus solely on medical-grade services such as Botox, lip filler, non-surgical facelifts, laser skin resurfacing, microneedling and other cosmetic procedures.
“We could only go so far as a regular spa, results-wise … and then that whole market just exploded,” said Kurt.
In late 2019, just before the COVID-19 pandemic, Anton’s closed its Pewaukee location, bringing the business under one roof in Delafield.
Weighing options
As they approached retirement age, the Hamptons thought more about the future of the business and how they would eventually step away. Keeping Anton’s in the family wasn’t an option. Their two daughters had grown up around the business but ultimately selected careers in different industries.
“They were here when they were little, playing with mannequin heads and stuff,” said Diane. “When we were working, they could just see it was tough, it’s a tough industry.”
And what’s more, the business had grown to between $5 million and $10 million in annual revenue, said Kurt, so finding a buyer with the right amount of capital and beauty industry experience would be a challenge.
One of the salon’s clients, who works in mergers and acquisitions, suggested an ESOP as a potential option. Kurt did his research, consulting with a couple of valuation firms and reading everything he could about ESOPs. It soon became clear why most salons could not qualify for this type of employee benefit.
“You had to have at least 15 to 20 (employees) … and you have to be very profitable. You have to be successful to even go down that road,” said Kurt.
The investment
The process of setting up the ESOP, alone, was an investment of more than $300,000, including $15,000 on the initial vetting to determine whether the business qualified and then retaining three different valuation firms, representing the buyer, the seller and the ESOP trustee.
Merging the medical spa portion of the business, which is owned and operated by cosmetic surgeon Dr. Tim Zelko of Zelko Esthetics through a management service organization, into the ESOP added another layer of complexity to what became a year-long process.
Under the plan, which finalized in February 2023, employees who work a minimum of 20 hours a week are eligible to participate in the ESOP after their first year of employment, and it takes five years to become fully vested. Shares of stock are distributed on an annual basis, and the number of shares an employee receives is based on their income for the year. The ESOP is offered as a retirement benefit, but, unlike a 401(k), employees don’t have to contribute any of their income to the fund.
The payoff
The ESOP benefits the business, too, as a powerful recruitment and retention tool. Anton’s has long offered a 401(k) plan, health insurance, paid time off and professional development opportunities, but the ESOP takes those benefits to the next level – especially for those who have spent the majority of their careers with the business.
“It’s been really well received,” said Kurt. “It was a really nice way for us to reward the people that have been here for decades. They helped build this place so not only do they get their 401(k) and other benefits, but now they have another retirement benefit that they didn’t have to contribute any money to.”
For new hires, the prospect of eventually owning part of the company – and sharing in its profits – is incentive to build a long-term career there, rather than bouncing around to the next best opportunity.
“They can see that they don’t have to go after five years, they can stay, there’s something for them to stay for,” said Diane.
Kurt said he’s noticed a new “owner’s mentality” among the staff when it comes to making major business decisions, such as investing in new laser machines or whether to increase prices to offset the cost of inflation. As company president and vice president, Kurt and Diane still have the final say but they’re fielding more input from their employees who, now as shareholders, see how such decisions directly impact their share price.
“They see that their shares will be worth more if our business is more profitable,” said Kurt.
