Going public

“An experiment in capitalism,” is how Sierra Computers founder Darren McBride describes it. The Reno businessman was one of the beneficiaries of an Initial Public Offering (IPO) of the insurance company that took over the old state-run workers injury insurance system.

For McBride, his “well into the six-figures” cash distribution from the Employers Insurance Company of Nevada (EICN) IPO was enough to help launch his new equipment manufacturing company Highly Reliable Systems.

Portions of McBride’s Employers’ distribution went toward ordering inventory, including circuit boards and plastic assemblies, and to pay for more outsourcing with vendors in China.

“We were selling products prior to the distribution, but this allowed us to bring in a second layer of products,” he said of HRS. On July 31, HRS will launch its RAIDFrame, which allows the use of three removable hard drives together. That would create “the largest removable back-up cartridge in the world,” the owner said proudly.

Cost for an entry-level RAIDFrame is $5,000. A larger model runs $11,000.

McBride’s firms are just a few of the businesses and organizations that received what they call an “unexpected windfall” after EIG Mutual Holding Company, the parent company of EICN, made its IPO in January. That resulted in a March distribution of almost $463 million in cash and $22.8 million in stock to policyholders, most of whom were small to medium-sized businesses. (On Tuesday, EIG was selling at 21.23.)

In plain language, the company sells workers injury insurance, and it was originally a state agency called the Nevada Industrial Commission and, later, the State Industrial Insurance System. In the 1980s, in part because premiums had been held down for employers, the state system was heavily in debt, its unfunded liabilities approximately the size of the state budget for two years. It was “reformed” at the 1993 Nevada Legislature, the reforms coming heavily at the expense of workers.

In 1999, Gov. Kenny Guinn proposed a further step, turning the system into a private mutual insurance company, owned by its policyholders.

Then in March this year, the company took itself public, buying out all policyholders for a whopping $850 million in cash and shares.

Efforts to interview company executives on how the mammoth conversion job was planned and accomplished were unsuccessful. In a statement issued at the time, Employers Holding President and CEO Douglas Dirks said, “Nevada policyholders have reaped the rewards of being members in this specialty writer of workers compensation. By distributing over $850 million in value to our members and into the economy of the State of Nevada, Employers has demonstrated a history of success.”

Cash or shares?
The company had 6,000 eligible members at the time of the conversion. Darren McBride not only has extra capital now for one hot young company in HRS, but he also has been able to hire additional staff to grow his more-established Sierra Computers. The cash infusion allowed him to hire three new technicians. More techs will ultimately allow the company to grow its billable hours for servicing computers.

Training computer techs can take a long time, however—six months to a year. The Employers’ money allowed McBride the elbow room to absorb the tech salaries in the meantime.

“With a little bit of working capital, you can put people on the staff until they are ready,” he said. “Our service [orders] is up 10 percent this month, and we expect to break even by October.”

The long-term return on the Employers’ investment is even better for Sierra. “I think once this settles out, we will be [at] about 25 percent growth in service,” the owner predicted. Next March will mark his one-year distribution anniversary.

McBride called the Employers distribution “good for the Northern Nevada economy.” Similar stories coming out of conversion are also appearing in other parts of the state.

Henderson-based All Valley Concrete Pumping, which does concrete finishing for Southern Nevada commercial and residential developers, received an undisclosed sum as a result of the EIG conversion.

Co-owner Lisa Moussette said the money helped both the 15-year-old All Valley and its new sister company, All Crete, Inc. Lisa and husband and business partner, Jim, are grateful for the new-found cash.

“It helped us with our business, and we were very fortunate to be involved in the holding company,” she said. “It was an opportunity, and we took it.”

All Valley Concrete Pumping has three employees, and All Crete has five staffers.

Arts support
It’s not strictly businesses that are benefiting, however. The trickle-down effect of the Employers’ distribution can be seen in the non-profit arts community, as well.

Jill Berryman, the executive director of the Sierra Arts Foundation, said the Reno non-profit’s board knew it wanted the money instead of Employers’ stock when the choice was presented last spring.

There was no debate, she recalled. “No, cash is always good for a non-profit organization. It was real close to $37,000, so it was fairly small compared to what other companies got.”

Still, it was enough to make a small difference in the lives of artists and in the operation of the organization. The money was divided between operational costs and endowments. That resulted in $20,000 in grant awards to professional and student artists.

The $1,000 grants can be used as the artists wish, with certain restrictions. And a little money can mean a lot to starving artists, Berryman explained.

“The beauty is that it is non-directed, so they can use it for art supplies or making a CD. We have had artists pay their rent or get a root canal if they desperately needed it.”

The artists aren’t the only ones benefiting from the scholarships. “The artists will spend that money in the Reno-Sparks area. The grants are given to artists in a 100-mile radius,” Berryman said.

The Sierra Arts Council’s day-to-day operations have been made a little easier by the distribution. Though the Employers’ money only accounted for about 3.7 percent of its funding—the annual budget is $1 million—every little bit helps.

The money came in handy when Berryman’s computer crashed recently, for example. “Those are things that we don’t budget for,” she noted.

Operational funding is more vital than the public realizes, the executive director maintained. “A lot of what people don’t understand is that people work here. There are salaries, there is health care. Behind the scenes, we have accountants doing the books.”

Donors want to fund art projects, not daily bills, Berryman said. “The operational funds pay for copiers, telephones and answering machines—this is not glamorous.”

Berryman and Sierra Computer’s McBride both termed their companies’ Employers’ allotments “windfalls” because they never expected to get anything back.

“When we found out the money we were paying into premiums was building us an ownership stake, that was really a pleasant surprise,” McBride said. “It’s not often in business that you get a windfall. It is more common that you get a notice that you have to pay more taxes.”

For now, McBride can rest a little easier with his business decisions.

“I wouldn’t say that it has made the company or made my life, but it has made for a lot less stressful year,” he said.

“Instead of staying up at night trying to see if this will impact the future of my business, it allowed me to grow.”