ESOP owned companies have unique advantages when considering a merger or acquisition. By understanding these advantages, the ESOP owned company may be able to negotiate a transaction that creates a “win-win:” it is more attractive to the other party and more favorable to itself.
If the ESOP owned company is the buyer, it can offer the seller many of the same benefits that motivate business owners to create ESOPs for their own companies. The transaction can be structured so that the principal payments for financing an acquisition are effectively tax-deductible. The target company’s shareholders can remain actively involved in management of the target company; and can participate in the ESOP. They may even be able to elect not to recognize any gain on the sale of their company.
If the ESOP owned company is the target of the acquisition, it may be in a position take advantage of its own beneficial tax position to make the deal more attractive to the buyer – without bearing the same tax costs that a non-ESOP owned company would have to address. By understanding these advantages, the ESOP owned company can negotiate a more favorable deal.
ESOP owned companies must also take care to properly address the many nuances of M&A transactions that are affected by the fact that the ESOP is a shareholder. From the pass-through voting required as part of the shareholder approval process, to payment of post-closing amounts to the ESOP seller and the post-closing rights and obligations of the ESOP seller, many issues are affected by the fact that an ESOP is a shareholder. When these issues are known and understood, they can be used to the advantage of the ESOP owned company.
SG&F has worked with M&A transactions involving ESOP companies as buyers and as sellers; ranging in size from under $100,000 to over $1 billion. We have addressed the concerns of family small business owners and of Wall Street private equity firms. We successfully obtained shareholder approvals through the pass-through voting process and we have structured transactions that do not require pass-through voting. We have designed transactions to provide non-recognition of gain to the sellers of target company stock, and we have resolved and addressed the post-closing aspects of M&A transactions involving an ESOP as a seller. Our depth and breadth of knowledge and experience allows us to anticipate issues early, and design solutions effectively. Our creativity and client-centered approach allows us to customize solutions to our clients’ unique circumstances, concerns and objectives.
Compliance Audits | Corporate Governance | Creation & Operation | Mergers & Acquisitions | Termination | Transaction Structure & Implementation