Succession Plan of a Great Man

The story of FSK’s succession plan 

as reported in the St. Louis Business Journal

Jan. 27-Feb. 2, 2006 edition – Vol. 26 No. 22-80 pages

I was a little anxious to follow up with Fred Kummer about an article that appeared in the Friday 1/27/06 edition of the St. Louis Business Journal. The article was a result of writer Rick Desloge taking an interest in doing a story about a number of new contracts at HBE – notably the more than $116 Million in contracts from McLaren Health Care. After rescheduling the meeting with Desloge twice, a meeting was set for 9AM on Tuesday (1/24/06). Rick arrived and the three of us (Fred, Rick and myself) sat down at the big conference style table in Fred’s office on the sixth floor. “Rick, we ahhhh well we’re doing work all over. We have projects in California and ya know I just got back from Flagstaff, Arizona where we presented to the flagship hospital in a system…we did some work in Cottonwood for them and ahhhh…” in classic Fred Kummer speak the interview was off and rambling. “Fred, Wes suggested I ask you about McLaren,” Rick interjected. “Yeah, well this ad here that we put together tells you about

that,” Fred responded with a print of a recent ad that includes a breakdown of contract amounts and square footages of the projects at McLaren’s hospitals in Michigan cities of Flint, Lansing, Lapeer and Bay City.” I sensed that Rick was relieved that he had something in writing and with numbers that substantiate something of a story at least. I was relieved that Rick had shifted the focus to projects that could be mentioned an article (versus projects HBE had not yet won).

The meeting went on with friendly exchanges between Fred and Rick. Rick only periodically jotting notes. It was clear to me that Rick would rely on Fred for color and me for facts until we began to venture in uncharted waters. “Ya know Rick, I have plans for this company to go on beyond me. It’s gonna mean …ya know Lonnie Lange had done a number of big projects in St. Louis and Lonnie is our Chief Operating Officer.” Fred went on to mention Greg Beck, HBE’s CFO and Gary Maier, HBE VP Project Development. Fred rolled out some information about a plan to sell 15-20% to key managers of the company within the next two years. (Totally off script and not planned.) The meeting went on for an hour and about 20 minutes. Rick pleaded with me to sit with him a bit so he could “Stitch together a story.” Naturally I agreed. “No, Rick I don’t think the Flagstaff information is timely – we don’t have a project yet…. The Bakersfield, California project is about $42 Million (San Joaquin Community Hospital) and is in progress… The regulators in California are “OSHPD” which stands for Office of Statewide Healthcare Planning and Development. These and a dozen other details, most of which did not make it to the final article but allowed him convince his editor that the story was of interest.

Rick Desloge called me several more times and I called him once to asked him to talk to Fred one more time. Fred was uncomfortable not having mentioned more people so in a follow up phone call Fred gave up a few more names – not confirming anything about the ownership transition – he mentioned Fred Scott, Ed Eslinger, Jim Kee, Kurt Kruger and Jerry Patterson. It had to be getting pretty close to deadline for the Edition that hits some newsstands on Thursday evening,

This is what the St. Louis Business Journal Article Said:

Kummer selling HBE stake to top managers

By Rick Desloge rdesloge@bizjournals.com

Fred Kummer Jr., the 77-year-old founder of HBE Corp., plans to transfer 15 to 20 percent of the giant design and construction firm to its key managers within the next two years. That will pave the way for Kummer eventually to sell the rest of HBE to a private investment firm that would keep the company operating. Creve Coeur-based HBE specializes in designing and building medical and banking facilities. “I either had to set up a succession plan or live forever,” Kummer said. Kummer built HBE into a $410 million-in-revenue powerhouse, with 6,000 employees, including 400 at its Creve Coeur headquarters. Kummer owns 100 percent of the firm, which construction industry executives said could easily be worth $300 million. The company also owns five Adam’s Mark Hotels, which Kummer said he does not plan to sell. Kummer said he is working with HBE’s in-house attorneys on details to get HBE stock to employees but is not working with any investment banking firms. Engineering and construction businesses can be hard to sell because the assets are the people who run the business, said Paul Schoebelen III, managing director of the Fortune Group in Clayton, an investment banking firm for private businesses. “That’s why most of these businesses end up being employee owned.” Investment firms have offered to buy the HBE design-build business over the years, Kummer said, and for the last couple of years he has been asking himself and his management, “Can this company survive without Fred Kummer? I hope it doesn’t have to for a while.” HBE’s Lonnie Lange, the company’s chief operating officer, is expected to lead the employee ownership group. He joined the business last year after stints at McCarthy and Jacobs Engineering. Gary Maier, HBE’s vice president of development who has been with the company 30 years, and Greg Beck, the company’s executive vice president and chief financial officer who joined the business in 2003, also will be part of the employee ownership group. Kummer said that group likely would be between five and 15 executives. Other key HBE employees expected to be in the ownership group include Jim Kee, vice president of construction; Ed Eslinger, president of HBE’s Hospital Designers; Jerry Patterson, senior vice president of national sales for HBE Financial Facilities; and Kurt Kruger, senior vice president of HBE’s hospital division. For Kummer, who is known for his hands-on control of most aspects of the business, the succession plan comes as HBE is starting 2006 with more than $116 million in hospital construction projects from one client alone” McLaren Health Care in Flint, Mich. HBE is building four medical centers for McLaren, which operates in central Michigan. Nearly all of HBE’s work is in other parts of the country, though the financial facilities side of the business completed local projects for Anheuser-Busch Employees’ Credit Union and three branches for First Community Credit Union within the past three years. Kummer started the business with his wife, June, in 1960. The couple has three grown children, though none works for HBE. Fred Kummer III, previously an executive vice president with Adam’s Mark, left the company after a dispute with his father in 2002 over how HBE was handling the Adam’s Mark operations. The elder Kummer ultimately sold 19 of the hotels and retained five, including the Adam’s Mark in downtown St.Louis. HBE has been ranked among the largest private companies in St. Louis, and last year the Business Journal placed it at No. 32 among local private firms, based on its $385 million in 2004 revenue. “There’s nothing else on its scale in St. Louis, and the company has had a dominant position in the health-care market for years,” said Karl Kloster, president of the Midwest division of McCarthy, the largest construction company based in St. Louis.

Shifting a company the size of HBE to a new ownership structure could require years of work, Kloster said. McCarthy, which is 65% controlled by an employee stock-ownership plan and 35 percent owned by senior managers, took 12 years to complete a transition from a family owned business to an employee-owned business. The new ownership structure at McCarthy included buying back shares held by other McCarthy family members, a step Kummer would not have to negotiate. Alberici Constructors, the region’s second largest contracting firm, has 90 stockholders at the company, and John Alberici, its chairman, holds a majority of the voting shares. 

While Kummer placed a two-year timetable on transferring 15 percent to 20 percent of HBE to key management, he does not have a time frame for selling his other 80 percent interest in the business. “If retiring is doing the things you like, I’m already doing the things I like.”