Our Dual Path process makes an ESOP compete with strategic and financial buyers in one auction — so sellers choose with real market evidence in hand.
As an investment banking practice, RBG Capital handles M&A engagements spanning mergers, divestitures, acquisitions, management buyouts, and structured growth equity and debt. The majority of our work is sell-side: representing owners of privately held businesses through the most consequential transaction of their lives.
Every sell-side engagement eventually arrives at the same question — who should the buyer be? For most owners, the realistic universe includes strategic acquirers, financial purchasers, and an ESOP. Our Dual Path process is built on a simple conviction: an owner should not have to choose among those paths blind. They should see what each one actually offers, at the same time, and decide with real numbers on the table.
It Starts with Discovery
Before any company goes to market, we run an extensive discovery phase covering the owner's transaction objectives and priorities, financial and estate planning posture, tax consequences of the structures under consideration, time horizon, and the other issues that matter to that particular family. The right transaction for a 72-year-old owner with no successor looks nothing like the right transaction for a 55-year-old founder who wants one more growth chapter. Process follows objectives — not the other way around.
Understanding the Three Buyer Types
Strategic buyers typically support the highest headline prices because of synergies: eliminating redundant personnel, leveraging combined scale in purchasing, and extending marketing reach. Those same synergies are the trade-off — they are often realized at the expense of the seller's people, culture, and corporate identity.
Financial buyers — private equity firms and family offices — commonly operate a platform model: acquire a platform company, integrate smaller add-ons to scale revenue, and capture the premium that markets pay for consolidated enterprises. The approach leans on financial engineering, and it has implications for the seller. PE buyers typically ask selling owners to roll over a meaningful equity stake — often around 20% — into the new structure, and the eventual second liquidity event usually arrives on the fund's timeline, commonly three to seven years out, with significant leverage on the business in the interim.
The ESOP is a qualified retirement plan regulated under ERISA. The owner sells shares to a newly formed ESOP trust for a combination of cash and a seller note, with the price set at fair market value through negotiation with an independent third-party trustee. The company's name, leadership, and operations generally remain intact; in the S-corporation structure, income attributable to the ESOP's ownership generally flows through free of federal income tax; and employees build retirement value in tax-advantaged accounts tied to the company's performance.
A Word on the Seller Note
In an ESOP transaction, the seller typically finances a portion of the purchase price through a promissory note. These notes are subordinated to bank debt, and they are compensated accordingly: interest rates are generally higher than what senior lenders receive, often supplemented by synthetic equity sweeteners — warrants — designed to provide equity-like returns on the subordinated risk. Capital gains attributable to the note are generally deferred until principal is received, and mezzanine financing can sometimes be introduced to reduce the seller's outstanding exposure. The note is not a consolation prize; structured well, it is a yielding asset with real return potential — though, like any subordinated credit, it carries repayment risk tied to the company's performance.
The Dual Path: Making the ESOP Compete
Here is the heart of the strategy. A standalone ESOP transaction has a structural quirk: the trustee's appraiser determines fair market value largely from financial analysis, without the benefit of live market evidence. The seller never really learns what the market would have paid.
The Dual Path process eliminates that blind spot. We prepare one set of institutional-quality marketing materials and run both processes simultaneously — taking the company to qualified strategic and financial buyers while the ESOP is organized in parallel. The goal is an auction in which the ESOP is a bidder alongside institutional buyers competing to purchase the company.
The benefits compound:
- Real market evidence. The trustee's appraiser must consider actual third-party offers when opining on value — anchoring the ESOP price to the market rather than to a model.
- Competitive tension. Buyers of every type sharpen their terms when they know they are not the only party at the table.
- A genuine choice. The seller sees the strategic offer, the financial offer, and the ESOP proposal side by side — price, structure, taxes, timeline, and what happens to their people — and weighs the trade-offs against their objectives, not against guesses.
Choosing from Strength
Some of our Dual Path engagements end in a sale to a strategic acquirer; the premium was real and the owner took it. Others end with the ESOP, because after taxes and on the owner's preferred timeline, employee ownership delivered the outcome that fit. The point of the process is not to predetermine the answer — it is to make sure the owner never has to wonder what the road not taken would have paid.
For owners weighing succession, the first step is a confidential conversation about objectives. The process exists to serve them, and the best time to design it is before anyone goes to market. Learn more about how ESOP transactions are structured or visit our ESOP advisory practice.
