Exploring Your Exit Options: A Dual Track Process

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 – 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
  • 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 PCE 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.

Will Stewart

 

David Jasmund, Shareholder

Investment Banking

djasmund@pcecompanies.com

Orlando Office

407-621-2100 (main)

407-621-2124 (direct)

407-621-2199 (fax)

Andre Sutherland

 

Andre Sutherland

Valuation

Orlando Office

407-621-2119 (direct)

asutherland@pcecompanies.com

Connect
407-621-2119 (direct)

407-621-2199 (fax)

Daniel Kvarnberg

 

Daniel Kvarnberg

Valuation

Orlando Office

407-621-2132 (direct)

dkvarnberg@pcecompanies.com

Connect
407-621-2132 (direct)

407-621-2199 (fax)

David Jasmund

 

David Jasmund

Investment Banking | ESOP

Orlando Office

407-621-2111 (direct)

djasmund@pcecompanies.com

Connect
407-621-2111 (direct)

407-621-2199 (fax)

Eric Zaleski

 

Eric Zaleski

Investment Banking | ESOP

Chicago Office

847-239-2466 (direct)

ezaleski@pcecompanies.com

Connect
847-239-2466 (direct)

407-621-2199 (fax)

klopfenstein-mark-square

 

Mark Klopfenstein

Advisory

Atlanta Office

678-596-6306 (direct)

mklopfenstein@pcecompanies.com

Connect
678-596-6306 (direct)

407-621-2199 (fax)

Melissa Ritter

 

Melissa Ritter

Investment Banking

Orlando Office

407-621-2128 (direct)

mritter@pcecompanies.com

Connect
407-621-2128 (direct)

407-621-2199 (fax)

Michael Rosendahl

 

Michael Rosendahl

Investment Banking

New York Office

201-444-6280 Ext 1 (direct)

mrosendahl@pcecompanies.com

Connect
201-444-6280 Ext 1 (direct)

407-621-2199 (fax)

Will Stewart

 

Will Stewart

Investment Banking | ESOP

Orlando Office

407-621-2124 (direct)

wstewart@pcecompanies.com

Connect
407-621-2124 (direct)

407-621-2199 (fax)

whitcomb-woody

 

Woody Whitcomb

Investment Banking

Orlando Office

407-621-2113 (direct)

wwhitcomb@pcecompanies.com

Connect
407-621-2113 (direct)

407-621-2199 (fax)

poole_michael

 

Michael Poole

Investment Banking

Orlando Office

407-621-2112 (direct)

mpoole@pcecompanies.com

Connect
407-621-2112 (direct)

407-621-2199 (fax)

vogt-paul

 

Paul Vogt

Valuation

Atlanta Office

678-641-4760 (direct)

pvogt@pcecompanies.com

Connect
678-641-4760 (direct)

407-621-2199 (fax)

    Services

    Industries

    Subscribe to PCE Communications

    Choose Your Subscription