Employee Stock Ownership Plans (ESOPs) provide significant benefits to business owners, and as a result, the ESOP liquidity strategy has become increasingly popular. This strategy, however, is not without complications, so you must understand the ESOP transaction and implementation processes before you decide to implement an ESOP at your company.
Determining when and how to exit your business is one of the most important and personal decisions you will make throughout your career. An Employee Stock Ownership Plan (ESOP) is a particularly attractive vehicle, given the flexibility it provides. An ESOP offers a tailored approach to selling your business. Selling to an ESOP offers meaningful liquidity while providing significant benefits to the company’s employees and delivering a powerful corporate finance tool that provides tremendous tax savings to both the owners and the company.
On their face Employee Stock Ownership Plans (ESOPs) appear to be a vehicle for employee ownership and not something that invites Private Equity Group (PEG) investment due to differing ownership structures. On the contrary, ESOPs and PEGs can co-exist in a mutually beneficial relationship. In many cases, PEGs view ESOP companies as having the exact characteristics they look for in target investments.
In many businesses, ownership and management teams strive to define and implement a culture that differentiates their company from its competitors. Creating an Employee Stock Ownership Plan (“ESOP”) not only preserves but often enhances corporate culture. For years, we have seen companies use ESOPs and various other ownership-sharing tools to attract, retain, and motivate talented individuals. Compelling research continues to highlight that employee ownership can be a powerful tool that yields enhanced corporate performance especially when paired with an “ownership culture.”
Family-owned businesses, a key pillar in the American economy, make up a significant number of the privately held companies across our country. Although these companies cut across all industries and range in size from small to large, they all share common challenges. The most daunting of these challenges is how to manage the transition of the business from generation to generation.
Employee stock ownership plans (ESOPs) offer business owners a flexible option for liquidity, business succession and incentivizing employees.
Our ESOP owned company has accumulated a substantial amount of cash from profits. We know it’s easy to let the excess cash build. But, how do we know when it makes more sense to use that cash to grow through reinvestment or acquisitions?
Change is hard to initiate even when we know the results will be better for us. This is true when there are signs that our ESOP valuation firm is no longer providing the necessary professional assistance. Our reluctance fades however, if warning signs begin pointing to increased risks for our company.