Bob Mckelvey, a third-generation home builder, had been running the company his grandfather founded in 1898 for nearly 40 years when he decided it was time for a change. But his children weren't involved in the business, and the prospect of selling out to a large, national home builder didn't sit right with him. Suddenly, after more than a century serving St. Louis–area home buyers, Chesterfield, Mo.–based McKelvey Homes was facing an unclear future.
“I talked to some bigger companies. They were interested, but it was obvious [my company] wouldn't remain the same,” McKelvey says. “The biggest concern I had was that whoever got it wouldn't run it right. I was afraid of getting a phone call from someone saying, ‘Look, I know you don't own the company anymore, but I've got to tell you what this guy is doing to the business.'”
As he was driving back from a meeting one day in 2002, unsure about what to do, his cell phone rang. McKelvey had been letting friends in his builders association know he wanted out, and for the second time in as many days, someone suggested contacting Jim Brennan, an executive at another builder in town looking to go out on his own. “That's when I knew I should make the call,” McKelvey says.
Now, after having struck a deal with Brennan and having spent three years as a paid consultant to transition the business, McKelvey, 76, spends the falls and winters in the milder climes of Florida. He comes back to his native St. Louis for spring and summer, knowing that his family namesake is intact with Brennan at the helm.
“He's doing better now than I did,” McKelvey says. “He kept the name, he kept all the people, he even stayed in the same offices. It was just a good arrangement for everyone involved.”
“The American dream is to own a home,” says Brennan, now owner and president of McKelvey Homes, which has expanded to building in eight locations from three. “But I think after that, the next one on the list is owning your own business. It's been so rewarding. Bob convinced me to buy it, and I'm so pleased that he did.”
EXIT ROUTES In an industry where inventory is generally viewed as a liability and a business' brand is closely connected with the owner's name, exiting one's home building business can be one of the biggest challenges of one's career. And while selling to a larger, national company may be an option, just as often in this housing slowdown, it's not.
For many, selling out to the big boys just feels wrong, something akin to throwing your life's work—and the loyal employees who've helped make it successful—to the home building wolves. But the story of McKelvey Homes, and others, proves there are options for builders in their silver years to exit the business while ensuring that the firm they've established keeps chugging along.
In fact, right now, options other than selling to a national firm might be the only alternatives. Observers say that in the current market environment, major home builders are likely to stay away from the deal-making table for several years. “There's very little appetite from the publics for doing acquisitions right now, because their stocks have been knocked down 50 percent and more,” says Martin Freeland, president of Organizational Development Associates, an Atlanta-based consulting firm.
Given that situation, observers say there are three main routes for exiting your company now, while giving the business a chance to survive after you're gone: You can sell to a third party in your own market, sell to an individual or group within your own company, or set up an employee stock option plan, where all of your workers eventually end up owning a piece of the company (see “ESOPs: A Little Bit for Everyone,” page 244).