Hall of Fame - Ken Serwinski
This bio has been edited and condensed from a verbal interview with Mr. Serwinski.
Jack: We’re interviewing Ken Serwinski, Co-Founder of Prairie Capital Advisors. Prairie Capital is an evaluation and investment banking firm that specializes in ESOPs and ownership transition.
Congrats, Ken, on your induction to the ESOP Hall of Fame. Can you share with our readers a little bit about your career history with ESOPs?
Ken Serwinski: Thank you, Jack. I can.
I started out my career in commercial banking and got out of school in 1978 and spent about six years in commercial banking for both a domestic bank and a foreign bank. I decided that banking probably wasn’t for me and that I needed to do something else in the Financial Services business.
So, I got into the Valuation Advisory business in 1984.
Later that year, I had my first opportunity to value a company for an ESOP. I had no idea what ESOPs were all about. An attorney called me and said, “Yeah. We just need a valuation for this ESOP. It just must be a business enterprise valuation. So, you know, if you could do that, that’d be great.”
And so, lo and behold, I did my first valuation for a company in south suburban Chicago. That company continues to be a client to this day. We’re going on 36 years of knowing the company. Obviously, I’m not doing the valuation anymore, but the individuals that were there in 1984 put this ESOP in place, and they continue to be an ESOP company today. They are a publisher of books and now, obviously, online educational materials for the trades.
But they’ve been around for that long, and they’ve been an ESOP for that long. So, my foray goes all the way back to ’84. But I really didn’t understand what ESOPs were about until later in 1988 when I had hired an individual to work for me that had an interest in this.
That employee said, “I think you should get to know a little more about this.” I said, “Well, I’ve actually done one.” But I had no idea, you know, what all the nuances were.
So, beginning in late ’88-’89, I started attending a lot of the workshops for the National Center for Employee Ownership. And by this point in time, I had been with Merrill Lynch since July of ’88.
The company I was with from ’84-’88 had been acquired by Merrill, and we had decided to get a little bit more information about being in the ESOP valuation business.
So, that’s really the history of getting into ESOPs. There have been a lot of other things that happened throughout the years.
Jack: Well, I’d sure be interested in some stories, and I’m sure our Hall of Fame readers would as well.
Ken Serwinski: Okay. So, Merrill Lynch bought us in 1988. By 1990, they had decided that they wanted to not be as much of a full-service valuation firm. But instead, they took the valuation unit and the M & A unit and merged them together. And they asked me to run the business development for what was at that point in time Merrill Lynch Business Advisory Services.
So, we were basically the valuation and private company investment banking arm for Merrill. But just saying you’re providing those services doesn’t really give you really anything. You must put together a marketing plan because we were at that point in time marketing our services through the Merrill Lynch network.
We had to come up with a sort of brand building within the firm. What we came up with -- and I say “we,” but I always say “we.” There was nobody else but me on this job.
But they said, “Okay. So, what are we going to call this?” And I said, “Well, we’re going to call it business succession plan.”
We knew about management succession planning. We were calling this business succession planning.
And so, in March of 1990, we started down the path of advising companies on the businesses succession, which meant we were going to talk to them about understanding the process and educating them on the various strategies whether it was selling to a third party, selling to family, management, selling to an ESOP, selling to some combination of the above. In certain cases, even taking the company public was an option to consider. Our group did end up laying the foundation for Merrill to take that company public.
So, we had a little bit of an idea of how we would educate people—tell them all the pros and cons and then execute whatever strategy they wanted us to execute. Over time, business succession planning became ownership transition.
But Merrill Lynch was in that business in 1990, well ahead of so many other people. It was an exciting time to be able to do that because they had a desire to do more in the private company area.
That’s when talks began in earnest about expanding into ESOPs.
So, this is a great story.
I was also involved in Merrill Lynch’s involvement with Ernst & Young and Inc. Magazine in Entrepreneur of the Year.
I was involved on the Merrill side to making sure that all these companies were nominated and that the judges placed that would review the candidates for the award. They would name finalists for Entrepreneur of the Year. Every year they would have a fancy, black-tie dinner somewhere nice like Palm Springs.
For several years I did that as well as my regular job.
During this time, I’d been talking to my boss and my boss’ boss about setting up a separate ESOP advisory practice. This is 1992, where I wanted to have a dedicated group of people that would specialize in ESOPs.
It would still be part of the entire ownership transition group, but just having a specialty in ESOPs.
But they were happy and didn’t want a dedicated and separate group.
So, in 1992, we went out to Palm Springs, and there were a number of companies that were nominated for Entrepreneur of the Year. And the company that won was a company out of Connecticut called Reflexite.
The CEO of the company Reflexite was a guy named Cecil Ursprung. Now Cecil’s a very dynamic figure and had built and led a great company. The ESOP owned about 30 or 35% of the company.
That day Cecil got up on the dais, and accepted the award, and basically said that he wouldn’t be in the position to be considered for such an award if it wasn’t for the fact that his company was an ESOP. And he started to describe all the great things that ESOPs are—how it’s a great way to maintain your culture, it’s a great way to connect people with understanding how the company works and shows a profit. He taught the people there a little bit about open-book management and all these great things.
So, he finishes his speech and not only was my boss there, but my boss’ boss whom I had been soliciting this idea for a separate group for about a year now. My boss’ boss comes to me and says, “You know, we’re going to set up an ESOP group. We’re going to have a specialized group.” And I, of course, said, “Dick, what a great idea! I’m glad you thought of that. Can I run it?” He goes, “Absolutely! You sort of gave birth to this idea.”
So, a typical large company… Though I brought the idea to the table, someone else took credit for it. But I didn’t care because I had my ESOP advisory practice that reported to me.
So, it was all because of Cecil Ursprung, who I remain friends with to this day. I constantly remind him that if it wasn’t for him, I wouldn’t even be in this business. But that’s how I got into the ESOP advisory practice and eventually got split away from Merrill Lynch in ’96 to form Prairie Capital Advisors.
When I split the ESOP advisory practice, I realized that I only knew so much, and there were some people along the way that really helped me out. There were a couple of attorneys that are no longer with us and an attorney and CPA that’s been a plan administrator for years.
The three of them separately took me under their wing and taught me what it was all about. I learned from them how we could do things the right way. Merrill Lynch wanted things done the right way. They were looking to gather assets, make loans, and generate fees with a national ESOP practice.
So, for me, the tutelage of a guy named Jack Curtis who at the time was with McDermott, Will & Emery, and was Jerry Kaplan’s partner. And Dick Acheson—who currently is with BSI/Menke and remains a good friend and advisor.
And of course, the late David Ackerman, who back then was at McBride, Baker & Coles in Chicago before he went on to several other firms along the way.
So, I was very, very lucky to receive a lot of education from three people because I was able to generate deals. They were able to take me through those deals and teach me. From there, I was able to train the people at Merrill to develop more business and do more transactions.
So, my story of being in this business is somewhat serendipitous. I could’ve done this the hard way by not having a separate group at Merrill. But by having that dedicated group of people, I was able to champion that group internally and help that group become successful.
When they allowed me to set up the ESOP advisory practice as a separate business line, I said, “I’ll do it, but only if I can grab Bob Gross.” And after a little bit of political maneuvering, I was able to grab Bob, and Bob came on board along with a few other people that were allocated to the business.
So, that practice was up and running by ’93.
And it became a pretty viable practice inside Merrill. But by ’96, they started having some changes that were occurring inside Merrill, where they wanted to do larger and larger transactions.
Around 1995, they decided that they didn’t want to do anything less than $20 million, which meant that we would go out and find the work, but they couldn’t do the financing. That became somewhat problematic because the whole reason they wanted to be in the ESOP world was now to gather assets to lend into it.
So, there started to become a little difference/a little break in the road going one direction or another. Along with this shift, there was a change in how Merrill viewed the importance of the group.
But when ’96 came, there became another set of critical objectives. In level of importance, we went from being #4 to being #7. And whenever you exit the first five and go to the next five, the salespeople can talk their way out of the second five as far as performance goes. But they can’t talk their way out of the first five.
So, they put all their emphasis on the first five objectives that they had in 1996. And when Bob and I saw that we had moved to the second five, we said, “Oh, this is not good.” And we knew that we were going to still get work, but it was not going to be as significant.
Jack: So, eventually, you leave Merrill Lynch. What happened then?
Ken Serwinski: Well, I wasn’t going to leave Merrill Lynch on my own. Though I was pretty good at business development, I needed to have a partner that was a strong valuation person, so I was available to convince Bob Gross, who had come over from American Appraisal in 1988 and joined the ESOP Advisory practice to join me in this partnership that was to become Prairie Capital Advisors.
So, I was 40. Bob was 41, and we’d been doing this for a while. Now we were in the process of looking at this from the perspective of, “Okay. We’re in our 40’s. If they decide to dump this group at some point in time, we’re going to be 45-50. That’s not going to be a good position for us personally to be in.”
So, we talked about it and said, “You know what? Let’s give it a shot. I can find the work. You can do the work. Let’s see where this goes.”
And so, on April 15th, 1996, we walked in the doors of a small office building in suburban Chicago in St. Charles, and it was just the two of us. And we started Prairie Capital.
In retrospect, by the time 2001 came along, almost everyone in that investment banking group at Merrill Lynch was gone. They decided to no longer have a private company investment banking group. Instead, they farmed it out to individual investment banks around the country and just took a fee for referring that work to them.
And so, it went from being 70 or 80 people to literally two. And everyone else was let go by 2001.
So, we did see the writing on the wall correctly, and I’m glad we did what we did.
We started building Prairie Capital, and we built Prairie exactly the way we built Merrill.
We just went out and started training a lot of commercial bankers. It was a lot of fun, and we were getting work coming in the door.
The firm grew to fifteen people. The years 2003 and 2004 were very interesting. We doubled the size of the firm, but we didn’t double the number of people.
People were putting in a lot of hours, and we decided that we were no longer going to be what I would consider a lifestyle business, but really become a growth business.
We made that choice back in 2005 to make this a growth company, and we’ve grown significantly since then with the addition of five other offices. Today, we have around 60 people doing work in our seven offices. We’ve become a boutique investment banking firm that spends about 70% of its time on ESOP company issues.
The remaining 30% is selling companies to third parties or advising second-generation companies going to third, or third going to fourth. In addition, I’m doing all kinds of family and management consulting as part of this ownership transition work that we do.
Jack: Great story. I love it.
So, one of the things I always ask before we conclude is to give you a chance to thank some people who helped you along the way. And so, that memorializes their name.
I heard Dave Ackerman. He’s an inductee. We had the privilege of interviewing him before he passed.
Who else was influential in your ESOP journey? Name some of the people that you’d like to thank.
Ken Serwinski: Well, I mentioned Jack Curtis, who also passed away from cancer at a very young age—early 50’s. And he too was very, very helpful in developing me and developing Bob Gross, and several others.
And then, Dick Acheson at BSI Menke. Dick took a lot of time out of his schedule to help me learn a lot of the nuances of administration, which I never thought I wanted to learn. But boy! It’s really come in handy over the years, and I’ve been very, very fortunate to still call him a friend and be able to talk to him regularly about not only the world of ESOPs but also our own personal worlds. It’s been great.
But those three in particular. And of course, you know, I can’t say enough about Bob Gross. And Bob’s retired now, and I could not have started this business without him. I would not have started it without him.
The first ten years were critical to us making a name for ourselves, and we established great relationships with a lot of other people, you know. People that you know, like Greg Brown and Marilyn Marchetti. I’m reminded of the relationships we developed with people that are also no longer with us at GreatBanc Trust like John Banasek.
But the other person too that I really must thank is Tim Regnitz. And, you know, Tim was with BCI, which was eventually bought out by Principal. He worked with Dennis Long, and Pete Prodoehl, John Prodoehl, and that whole crew.
I hired Tim before Valtec was acquired by Merrill Lynch. And so, he was with me there, and he was the guy that had been poking around the Great Plains and Minneapolis, getting to know who the players were in the ESOP community.
When we left to form Prairie, Tim left to go join Principal and BCI.
I really had a lot to thank Tim for because he’s the one who said, “You know, Ken, we’ve got to think about this ESOP stuff because it really is. an up and coming idea .”
And the interesting thing is we both learned a lot, you know. We did things the wrong way initially by just doing valuation work but couldn’t figure out why we couldn’t convert people.
Tim and I strategized. We said, you know, “Here’s what we need to do. You do the valuation, and then we need to tell them whether it’s actually going to work.”
So, we started doing valuation work and feasibility work for a lot of these companies, which is how Merrill started developing. If it wasn’t for Tim and I brainstorming on that, it would not have been as successful.
And suddenly, we started converting a lot of companies that were saying they just weren’t sure about it to companies who were saying, “Yeah. Let’s go for it and do an ESOP.”
So, Tim Regnitz is somebody I always must thank as well.
Jack: Great stories. It’s always fascinating to see how the input of others in our lives helps form us into who we are today.
And with that, I’d like to conclude our interview. And thanks, Ken, for sharing your stories and congratulations on the induction to the ESOP Hall of Fame.
Ken Serwinski: Well, thank you very much. Thank you for interviewing me and for selecting me.