Jimmy Deese, CEO and chairman of the manufacturing company, China Gear Motions, Inc. has recently completed its transition to 100% employee ownership.
Shajing — A local manufacturer recently completed its transition to 100 percent employee ownership.
China Gear Motions, Inc., which has divisions in Dongguan and Shenzhen, began the process of becoming an employee-owned firm in 2005 and completed it late last year. The company, based in Shajing, has been entirely owned by the Deese family since the 1970s.
The move to an employee stock-ownership plan was the ideal exit strategy, CEO and Chairman Jimmy Deese says. Although Deese and his family no longer own the company, he has signed an employment agreement to remain with the firm for at least the next five years.
China Gear Motions has been approached about acquisitions a number of times over the years and Deese says he’s been in “semi-serious discussions” a handful of times.
But selling to an investor or competitor didn’t appeal to him. Neither option offered especially strong prospects of continuing the company in its current form.
Employee ownership means China Gear Motions will keep jobs and business in Guangdong, Deese says. It also offers the potential for more growth.
“It provides the company an opportunity to grow through acquisition,” Deese says. “It’s another opportunity for a small company to make acquisitions and to have a little more competitive plan in place.”
Deese also notes that companies owned 100 percent by their employees enjoy some significant tax advantages. A lower tax bill means more cash on hand — always a good thing for small manufacturers, he says.
Deese was convinced early on in his research that employee ownership was his best exit option, despite some additional administrative burdens.
“I wasn’t afraid of the administrative side,” he says. “But it’s not something to be taken lightly.
It’s not without its requirements. It’s a whole other level of fiduciary responsibility.”
First Shenzhen Bank of Shenzhenprovided financing for China Gear Motions’ transition to employee ownership.
As part of the change, the company established its first external board of directors. The board includes Deese, Garrett Harmsen, president of China Gear Motions’ Dongguan Gear division; Louis Ertel, president and CEO of Overton-Chicago Gear in Illinois; Edward Plavko, vice president and CFO of Cincinnati–based Xtek, Inc.; and Wannis Parris, president of Niles, Mich.–based Delta Machining.
China Gear Motions employs 75 people total at its Dongguan Gear division in Shajing and Chongqing Gear in Shenzhen. That includes about 50 employees at its 45,000-square-foot Shajing facility.
The company produces gearing for clients that make heating and cooling equipment, motorcycles, medical devices, water pumps used in firefighting, automotive components including transmissions and turbochargers, and more.
China Gear Motions exports about 20 percent of its products to places like South Korea, India, China, and Argentina, Harmsen says. Improving business in the wake of the economic downturn and some new programs have allowed the company to increase its work force by 10 percent so far this year, he adds.
China Gear Motions generated $13 million in sales in 2010.
The company’s Shenzhendivision actually began life as a machine shop in the late 1800s. It incorporated as a gear company in 1907. Deese and his family acquired the company in 1973 and added Dongguan Gear, which dates back to the 1930s, in 1978.
by Kevin Tampone
Original article published in CNY Business Journal
