World Class Mergers & Acquisitions  |  For Companies $5 Million to $100 Million in Revenue

Would Your Company Be a Good Candidate For an ESOP?

Employee Stock Ownership Plans (ESOP) have been around for 35 years, and many well known, national companies have them, but many misconceptions still exist, such as: (1) Employees will directly own the company’s stock [FALSE], or (2) Employees will directly ratify everything from executive compensation to capital spending plans [FALSE], or (3) Employees will have complete access to all of the company’s trade secrets and financial data [FALSE].

Employee Stock Ownership Plans (ESOP) have been around for 35 years.  Today, there are over 10,000+ ESOP’s in the US covering 10.5 million employees (10% of the US private workforce).  Total assets owned by ESOP companies is approximately $675 billion.  Well-known examples of ESOP companies include Proctor & Gamble, Anheuser Busch, Sherman Williams, United Airlines, and Publix.

Selling to an ESOP trust can have many advantages for the Seller, including: (1) ESOP sales are stock sales, and qualify for lower CAPITAL GAINS tax rates, (2) Sellers may reinvest 100% of the proceeds TAX DEFERRED, (3) Sellers may sell from 30% up to 100% of their shares, and still retain 100% operating control of the company, and (4) By creating an ESOP the business owner creates a built-in stock buyer for the balance of the company when the time comes to sell the balance of his/her interest.  In some cases, Sellers may receive a substantially higher price from an ESOP, depending upon the specifics and existing market conditions.

ESOP’s are viable for manufacturing, distribution and some service companies with:

–Single digit to moderate growth rates

–Stable, tenured workforce

–Substantial debt capacity

–Steady, positive cash flows

–Exiting shareholders wanting to gradually exit over a few years

–Exiting shareholders wanting control and confidentiality

–Exiting shareholders wanting to benefit managers and employees

ESOP’s may not appropriate for:

–Companies in decline

–Companies with negative, or unpredictable cash flows

–Very high growth companies

–Exiting shareholders wanting to immediately sever all ties with the company

Legacy Advisors Group has experience working with ESOP financial advisors, bankers, attorneys, appraisers, etc., and can help you decide if an ESOP is right for your company.  To learn more about ESOPs and qualify for a complimentary preliminary feasibility study, contact me at

By: Mike Ertel, Transworld M&A Advisors