New State Capital Partners Completes ESOP Recapitalization with Employees of Klein Hersh

18 months after taking an equity stake in the nation’s No. 10 executive search firm, the investor group behind Klein Hersh offers to share some real upside with the employees who helped build it. Hunt Scanlon Ventures takes an inside look at how the conversion to an ESOP can create a stronger business model by deepening the ties among employees and investor groups and aligning around a shared growth mission.

May 20, 2022 – New State Capital Partners has partnered with the employees of Klein Hersh to complete a recapitalization through an employee stock ownership plan (ESOP). The firm’s senior executives will remain in their leadership roles. New State will retain a stake in the company in the form of structured equity and warrants. “Our 48 employees have grown the number of executives we’ve placed more than 150 percent, and together with New State, have been instrumental in doubling EBITDA in the less than 18 months,” said Jason Hersh, CEO of Klein Hersh. “As an executive search firm, people are our business, and giving our employees the opportunity to enjoy the benefits that come with ownership is the epitome of that ethos. We look forward to continuing our work with New State to build on our success.”

Established in 1998, Klein Hersh works with global pharmaceutical, biotech, and healthcare companies as well as operating businesses of PE and VC-backed investments. Among the firm’s clients are a Who’s Who list of biopharma, biotechnology, life sciences, healthcare, therapeutics, and venture capital & private equity outfits, including CVS Health, Biogen, Andreesen Horowitz, Elevate Bio, KKR, Novo Holdings, Talaris Therapeutics, Atlas Venture, Veradigm, Versant, Cognizant, Francisco Partners, Madrigal Pharmaceuticals, Adicet Bio, Arvinas, Third Rock, Riverside, Signet Healthcare Partners, Black Diamond Therapeutics, Clear Choice, Limelight Bio, and Rhythm Pharmaceuticals, among a long list of other leaders across the space.

“We are excited to offer Klein Hersh’s employees a meaningful opportunity to share in the value they have helped create,” said John Beauclair, senior principal at New State. “The ESOP structure aligns with New State’s ESG goals, and we will continue to look for future opportunities to provide financing options that enhance employee ownership.”

Hunt Scanlon Report Highlights

Klein Hersh catapulted into the No. 10 spot in the latest Hunt Scanlon Top 50 Recruiter Rankings roster, reporting $110 million in revenues, an 85 percent jump over the previous year. Mr. Beauclair said he expects to see continued strong growth ahead, for Klein Hersh and the sector at large. “It is becoming much more broadly accepted that focusing on talent is a key differentiator in the success of a business,” said Mr. Beauclair. “Executive recruiting in our view is an inexpensive price to pay for the insurance that companies receive when they set out to canvas the market for the best available candidates.”

It is also big business. According to Hunt Scanlon’s latest market intelligence report, billions of dollars continue to pour into the high-end recruiting sector, a result of pent-up demand for executives and their key reports. According to data analysis conducted by Hunt Scanlon, 48 of the 50 largest U.S. recruiting firms enjoyed double digit growth in 2021, and market demand for senior leadership talent remains red hot. PE-backed companies, a particular strength for Klein Hersh, has been a key business driver for the sector overall.

According to Hunt Scanlon, the 50 largest U.S. recruiting firms produced record revenues last year, reporting $5.9 billion in fees, a $2 billion, or 52%, one-year rise. Boutique recruiting providers – among them, Klein Hersh – which offer more bespoke industry and functional solutions to clients, shattered old records as the flight to search specialists intensified. They reported $2.2 billion in revenues, a 58 percent rise. To view Hunt Scanlon’s latest rankings, visit

To assist with the extensive legal, financial, tax, and governance expertise ESOPs require, New State and Klein Hersh engaged the following advisors: Morgan Lewis and Lex Nova for legal, Crowe for tax, Kroll for valuation, and Citizens for investment banking advisory. The financing was led by Star Mountain Capital, with debt advisory services from Piper Sandler.

Solomon Page Moves to Employee-Owned Business Platform

New York City-based Solomon Page shifted to an employee stock ownership plan (ESOP) model to, among other things, enhance the firm’s ability to recruit and retain top talent. ESOPs, according to financial experts, are most commonly used to provide a market for the shares of departing owners of successful closely held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars. In almost every case, ESOPs are a contribution to the employee, not an employee purchase. Whether this becomes a new trend among executive search firms remains to be seen, but clearly the pandemic is creating an environment where many of the old rules of managing and ownership no longer apply.

“The timing of this transaction is a true testament to the confidence we have in our platform, strategy, and most importantly, people, as we navigate the challenges presented by the pandemic,” said founding partner and managing director Lloyd Solomon. “We believe each and every person to be a valuable part of the successes achieved and rewarding employees for what we have accomplished will not only offer security, but confidence in our plans for the future.”

“The company sought a strategy that would allow it to retain control of its future, provide financial diversification, and give its employees an opportunity for a deeper connection to the firm,” said Scott A. Scanlon, CEO of Hunt Scanlon Ventures. This transaction was funded by IDB Bank.

New State first invested in Klein Hersh in November 2020. “It’s no secret that life sciences and healthcare are booming fields with significant growth pathways for the foreseeable future,” said Shaun Vasavada, vice president at New State. “Businesses in those sectors need experienced leaders with technical expertise to build successful organizations, and Klein Hersh has proven to be a strategic partner to clients seeking world-class talent.”

“It was important for us to find a financial partner who understood the priorities of owner-managed companies and could help us attain next-level growth,” said Mr. Hersh at the time. “We feel fortunate to be working with New State, whose financial and operational resources will guide our expansion and reinforce the culture that has contributed to our success.”

Armstrong Craven Moves to Employee-Owned Business Platform

Executive search firm Armstrong Craven, headquartered in Manchester, U.K., has become a majority employee-owned business. The firm will continue to be led by joint managing directors Rachel Davis and Peter Howarth. “We have long believed that the well-known benefits of employee ownership, when combined with our extremely dedicated team, will be a recipe for success, and we expect to see our business go from strength to strength under our new co-ownership structure,” the firm said.

Entrepreneurial-Minded PE Firm

New State Capital Partners is an entrepreneurial-minded private equity firm that prides itself on a long-term outlook, approaching each potential investment as an opportunity to create lasting and valuable relationships with company founders and especially independent sponsors. The firm has the ability to invest up to $100 million in equity per transaction and seeks to invest in market-leading companies with $8 million to $40 million of EBITDA in the areas of business services, industrials, and consumer. New State and its affiliates have invested in more than 30 companies to date.

The Klein Hersh ESOP conversion is the second time New State has taken this path – the first being with Gautier Steel Ltd., a leading producer of hot rolled carbon, alloy flats and sharp-cornered squares, and like Klein Hersh also based in Pennsylvania.

“Executive recruiting leaders are increasingly turning to private equity investors to help them grow and expand,” said CEO Scott A. Scanlon, who also oversees Hunt Scanlon Ventures, an M&A advisory business which sits at the nexus of buyer, seller, private equity funding source, and client.

“This is the third ESOP conversion we have seen recently, the other two being Armstrong Craven in London and Solomon Page in New York. In many cases, the shift to an ESOP can strengthen these businesses by sharing the upside with hard working employees and giving them a stake in the future success of the business. While it can dilute a private equity firm’s investment, it can on the flipside help to cement greater returns by sharing the wealth with employees. Arguably, happy employees stay longer and become more vested in the success of the business over time. Everyone wants to be an owner and ESOPs intentionally offer that.”

Related: Hunt Scanlon Media Launches M&A Advisory Service for Recruiters

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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