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    Exploring Your Exit Options: A Dual Track Process

    2 min read time

    In this favorable market, how do sellers contemplating an exit from their business decide whether to pursue an M&A sell-side transaction or the formation of an Employee Stock Ownership Plan (ESOP)?  They don’t.  Instead, they run a dual track process which incorporates both processes.  This provides the owners knowledge of both possible outcomes simultaneously.  Now the owner can make the best choice based on actual offers and company specific options.


    Each exit scenario provides benefits and challenges. The tables below show a quick summary of the pros and cons of each exit process.

    M&A Pros & Cons (Strategic Buyers & Private Equity)

    Pros Cons
    • Negotiated price
    • More cash at closing
    • Scale & geographic reach
    • Faster departure from operations for the seller
    • Usually structured as an asset purchase
    • Higher taxes paid
    • Employee agreements or earn-out provisions likely
    • Might require continued equity investment


    ESOP Pros & Cons

    Pros Cons
    • Fair Market Value for the shares
    • Sell stock not assets
    • Favorable tax treatment
    • Potential for higher after-tax proceeds
    • Flexibility in the structure
    • Value received at closing may not be all cash
    • Operational responsibilities may be required of seller post transaction


    The Dual Track Process

    PCE manages both processes simultaneously but under one engagement: a sell-side auction process and an ESOP process.

    • The M&A engagement involves preparing a corporate profile of the client company, identifying and prioritizing strategic as well as financial buyers, and creating a competitive environment for the highest price and best terms.
    • The ESOP process includes a valuation following Department of Labor specifications, a feasibility analysis that considers the various ESOP transaction structures, tax advantages, and financing options.

    The auction element of a sell-side process and the ESOP fair market valuation can each be enhanced when conducted in a parallel exercise. The ESOP valuation considers bona fide offers from capable buyers, which a sell-side auction inherently produces. This ensures the ESOP valuation closely tracks strategic buyer offers. The preferential tax treatment for the ESOP scenario challenges the strategic buyers to increase their offers to match the higher ESOP after-tax proceeds.  Therefore, the ESOP is actually part of the sell-side auction.

    We believe an owner needs to fully understand all of their liquidity options, and the Dual Track engagement eliminates the chance of an uninformed decision.  

     Visit our Exit Planning Library to find additional resources to help guide you through the exit planning process.

    If you have comments or questions about this article, or would like more information on this subject matter, please contact us.

    David Jasmund


    David Jasmund, Shareholder

    Investment Banking

    Orlando Office

    407-621-2100 (main)

    407-621-2111 (direct)

    407-621-2199 (fax)

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    David Jasmund


    David Jasmund

    Investment Banking | ESOP

    Orlando Office

    407-621-2111 (direct)

    407-621-2111 (direct)

    407-621-2199 (fax)

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