Our ESOP Journey: ANX Home Healthcare

In 2007, the Bay Area clinic where Thomas Rocas worked as a nurse was overwhelmed with patients. Following protocol, Rocas arranged with outside home healthcare agencies to handle the overload.

When he saw his patients again, Rocas found they’d received subpar treatment. Wound dressings, for one thing, hadn’t been properly applied.

That didn’t shock Rocas. Care inconsistencies were all too common in his industry. Instead, Rocas was surprised by his patients’ dedication to several of the nurses who’d provided such imperfect care.

"They didn’t remember the name of the homecare company, but they remembered the name of the nurse,” Rocas says. "Some of them said, 'Thank you for sending that angel.'"

The lesson Rocas took from the incident is that patients value compassion from their care providers — so much so that they’re willing to overlook poor treatment. "They don't know that they're getting shortchanged," he says.

But what if a clinic could provide both deep empathy and clinical excellence? Inspired by that vision, Rocas and his wife, also a nurse, founded ANX Home Healthcare in 2007.

A Material Stake for Employees

By 2017, ANX was a thriving 80-employee concern. Success was gratifying, but Rocas was still chasing the ideal he had envisioned a decade earlier — the development of a workforce with an extra incentive to provide extraordinarily empathetic care. Rocas was also focused on giving more back to his employees.

The question was how. "I had been playing with a lot of incentives, bonuses, and things like that," recalls Rocas. "But I was struggling to find a benefit program that felt fair."

Offering his employees a material stake in the company, he decided, was the way to go. Enter the employee stock ownership plan (ESOP). Rocas had become aware of ESOPs the year before at an executive development conference. What stood out to him was the equitable and entrepreneurial nature of employee ownership.

In an ESOP, business owners will sell some or all of their outstanding equity, at fair market value, to an employee stock ownership trust. Qualifying employees receive annual allocations of stock proportional to their salaries. Shares are always held in trust and are generally subject to a three- to six-year vesting period. Employees realize the value of their equity when they retire or otherwise exit. At that point, the company buys back their vested stock at the current independent valuation.

The idea of employees owning equity especially resonated with Rocas. Giving them "skin in the game" seemed a way to promote his original vision of a healthcare provider offering care as compassionate as it was competent.

"My ideal strategy was always to hire doppelgangers of myself," he says, "but that wasn’t easy. Often I’d find people who were skillful, but didn’t embody the values and principles I wanted for the organization."

Offering employee ownership at ANX changed the paradigm by attracting a superior pool of job applicants. "Slowly, we started to find the right people," Rocas said. "You get more invested in the mission when you can claim to be an owner."

Continuity and Future Upside

Rocas’s goal was an extensive employee ownership program that still offered upside. So ANX transitioned to 100% ESOP ownership. Rocas and his wife sold their entire equity stake at fair market value, but retained warrants, or rights to buy additional shares in the company at a predetermined price. That form of synthetic equity offered an opportunity to benefit financially from future company growth.

While the ESOP sale offered Rocas and his wife a meaningful liquidity event, both decided to stay on as CEO and COO, respectively. As part of the transaction, ANX also established a board of directors, giving Rocas a much-appreciated resource he could tap for advice and feedback.

Rocas had once dreamed of retiring at 45. Now he found himself eager to keep working. He was emotionally invested in a company that even more fully embodied his values, and he wanted to remain part of a team that, more than ever, was pulling in the same direction.

Weathering the Pandemic Shutdown

Among the many benefits of employee ownership, Rocas stresses two. First, the significant tax advantages played a pivotal role in ANX's survival during the pandemic. 100% ESOP-owned S corporations are virtually exempt from federal and state income taxes in perpetuity.

When ANX’s primary offering, in-home care, was prohibited for nearly a year, business fell off by almost 40%. "Those were scary times," Rocas recalls. Yet, because ESOP status had relieved ANX’s corporate income tax burden, it remained cash-flow positive throughout the crisis. It’s a source of pride to Rocas that ANX didn’t lay off employees during the pandemic.

The second benefit was less tangible. In Rocas’s view, the presence of a founder such as himself in a middle-market company can hamper innovation. Employees with good ideas can keep quiet, assuming their opinions won’t matter to the boss. However, as his former employees became employee owners, Rocas found that the dynamic changed.

"When you start to message, 'No, this is your company' — and authentically, because this is their company now, really — it's a much easier conversation." His employees started bringing him new business ideas and pointing out areas that needed improvement.

An ownership culture had been born.

Aiming for 100 Years

The ESOP experience has changed Rocas’s time horizon. The man who had once dreamed of packing it in before he turned 50 now started thinking more long-term. "I realized I really want to take care of people," he says, and to "put ANX on the path to 100 years."

The centennial mark might be a long distance away, but the employee-owned ANX is going strong as it nears its twentieth birthday. Eighty employees strong when it became an ESOP, it now employs 150.

"I established the business because of a passion that I have," Rocas says. "I love taking care of people, and I want to continue that until I'm 90, until I can't do it anymore. And yeah, I think an ESOP is the best way."