Broker Check

ESOP Transaction Advisory

“Not your Grandfather’s ESOP”

The modern ESOP has evolved to be a viable alternative to a traditional Private Equity or Synergistic acquiror. This evolution was pioneered by forward looking sources of capital as a way to maximize value, eliminate the drag of taxes, and maintain corporate culture.

ESOP Advisory Services:

ESOP Advisory Services:

  • ESOP Sell Side Advisory: From Alpha to Omega
  • ESOP Preparation – getting the right advisors on the team
  • ESOP Process and Execution
  • ESOP Closing

Learn How ESOP and a Traditional M&A process are not mutually exclusive. 

Read our “Dual Path” White Paper
ESOP Expertise:

ESOP Expertise:

Through our discovery process we assess, design, and execute ESOP transactions, including new ESOP formations ranging from 30% to 100% interest in clients’ businesses.

  • S and C Corporation
  • Corporate Reorganizations
  • 1042 elections & Qualified Replacement Property Management


What is an ESOP and why might it be a good option?

  • An ESOP is an Employee Stock Ownership Plan
  • It is a Defined Pension Plan and is a distinct legal entity
  • The Company is sold to a newly created ESOP that purchases the business for the sole benefit of its Employees

How can the Employees afford to purchase the Company?

  • The Employees pay nothing
  • Congress has directed income tax dollars to facilitate Employee ownership of Companies
  • A bank loan is used to purchase the Company by the ESOP
  • If the Company is an “S” Corp, the income flows through to the ESOP which, as a Defined Pension Plan, pays no
    income tax
  • If the Company is a “C” Corp, acquisition principal, as well as interest, is deductible.

Does the Seller finance part of the transaction?

  • The Seller takes back a loan, subordinated to the bank, at a much higher interest rate than the 1st lien holder
    (bank), and is granted synthetic equity (warrants)
  • The targeted timeframe to pay back the bank is 36-48 months, at which time the ESOP usually refinances with
    the bank to pay out the Seller’s note
  • Once the Seller’s note is paid, the ESOP usually refinances with the bank to pay out the Seller’s warrants
  • If the Seller doesn’t wish to carry all of his note, there are some PE firms who participate in this type of mezzanine financing

What if the Company is a “C” Corp?

  • The Seller can make an IRC S. 1042 election to defer, and sometimes permanently avoid, capital gains tax
  • Under S. 1042 the Seller buys Qualified Replacement Property (QRP) (US stocks or bonds) with the whole or part of the sale proceeds
  • Capital gains tax is deferred until the Seller decides to sell the QRP
  • If the Seller chooses to never sell the QRP and owns it at her death, her heirs enjoy a step-up in cost basis to then current FMV, hence no tax is owed
  • Congress is contemplating extending this benefit to “S” Corp ESOPs

Any other ESOP advantages?

  • The Seller can decide to sell 30-100% of the Company to an ESOP
  • A 100% ESOP never again pays income tax and hence is at a competitive advantage eg. being able to make strategic acquisitions with pre-tax dollars
  • Studies indicate employee-owned companies enjoy increased productivity, therefore increased profit
  • Management structure can stay in place, providing for succession of the business eg. to the Seller’s children
  • Because an ESOP is a pension plan, when an Employee retires, he can opt to roll-over his ESOP funds into an IRA and control when to liquidate and pay income tax


For more information about our firm and the services we offer, send us a quick email or call the office. We would welcome the opportunity to speak with you. |  (602) 230 - 0444