Eric Zaleski


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If your company has made it through the last several years in a strong position, it could be highly valued in a transaction. With multiples for companies in the current mergers and acquisition (M&A) market, you need to consider what your best option might be: sell now or continue to grow and assess your options at a later date. For ESOPs, this choice can be difficult. Fortunately, there is a way to evaluate your alternative without testing the market.

Engage an investment banker to provide a sell versus hold analysis. This independent assessment of your company will help you determine your value based on current market factors as well as provide an analysis of the field of potential buyers and what the interest level might be. This detailed document will help the company’s board and executive team determine the prudent path forward.

The ESOP Dilemma

ESOPs provide companies with an evergreen ownership option that solves one of the biggest issues facing privately held companies: ownership succession. Who owns the company now and in the future? An ESOP is the answer. Current and future employee-owner participants of the ESOP help drive growth and, ultimately, value. The ESOP structure allows for ongoing liquidity for ESOP participants funded primarily through tax advantages, which means ESOP-owned companies do not have to sell to provide returns to their owners. This allows them to be an ESOP-owned company forever. But how does the board maintain its fiduciary responsibility in deciding whether to buy (invest more into the growth of the company), sell the company, or hold (maintain the status quo). At the end of the day, the board is required to do what is in the best interests of the company, its shareholders and ultimately the ESOP participants.

The number of ESOP-owned companies has remained fairly steady over the past decade, at around 6,400, according to data compiled by the National Center for Employee Ownership. This consistent figure reflects the significant number of new ESOPs being created while a similar number merge, become acquired, or terminate their ESOP. Like all businesses, ESOPs are subject to general economic conditions or new senior management needs. But many of these exits are the result of proactive ownership designed to maximize shareholder return for the benefit of the ESOP participants. You need to know if you should be in this latter category.

The ESOP structure allows its participants to realize their investment in retirement, through cashing in their shares. Share repurchase is based on the ESOP’s annual valuation, which may understate the current market value of the shares. It might be a significant understatement compared to what a third-party buyer may pay for the company in a sale. While neither the board nor the trustee has a legal obligation to investigate all possibilities, many will make the effort to evaluate opportunities on the chance that a sale could benefit the company and the ESOP participants.

You may have received multiple inquiries regarding selling the company – especially in the current market. Wading through the real offers is time-consuming, and the fishing expeditions some pseudo buyers embark on are downright annoying. The responsibility for analyzing your options in these situations may come in the form of formally reviewing market conditions, offers, and opportunities at the board or committee level every two or three years. What you really need is a rather sophisticated, timely sell versus hold analysis that ensures the company is moving in the right direction for the benefit of the ESOP participants.

What’s a Sell Versus Hold Analysis?

A sell versus hold analysis is a valuable document that will tell you if you and your advisor should devote time in evaluating a third-party sale, which will provide the board and the ESOP trustee the best course for the company. The ESOP trustee has a different standard to uphold compared to other privately held companies, since the trustee acts as the ESOP participants’ fiduciary and therefore, solely in their best interests.

But it is not easy for most boards and trustees to gather the information necessary for a sell versus hold analysis. That’s where a professional investment banker comes in, someone who is an expert with ESOPs and the M&A market, with access to all the data needed to deliver a full study resulting in a comprehensive sell versus hold analysis. A professional advisor will gather at least the following:

  • Detailed industry overview
  • In-depth company financial and operational analysis
  • A list of all potential buyers
  • Complete comparison of a third-party sale versus remaining an ESOP
  • Sales process

With this data in hand, the professional advisor will help you compare what a third-party might pay for your company versus the current ESOP valuation. Barring a meaningful difference in total value to the ESOP participants, it is probably not worth the effort to go through a sale process unless there are extenuating circumstances, such as a large unfunded repurchase obligation, little to no growth opportunities, etc. If the value and market conditions prove to be advantageous, where a premium to the current valuation can be realized, you will have the proof necessary to go to market. This is the essence of a sell versus hold analysis, a study that can provide the necessary guidance to make critical decisions about the company’s future and achieve the best result for the participants.

If you have questions about a sell versus hold analysis and whether one can help you, please contact PCE. We are experts in the ESOP community as well as the M&A market and have helped a number of ESOPs through this process, resulting in the ability for the board and trustee to truly understand the company’s and participants value.

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Eric Zaleski


Eric Zaleski

Investment Banking | ESOP

Chicago Office

847-239-2466 (direct)

847-239-2466 (direct)

407-621-2199 (fax)