An Employee Stock Ownership Plan (ESOP) may be a great alternative for business owners who are considering liquidity, succession and legacy options and opportunities.
A feasibility study or transaction analysis is an important first step in providing shareholders with a roadmap or blueprint of what an ESOP transaction might look like. It provides shareholders and key advisors the information they need to make an informed decision and determine if an ESOP is the right liquidity and succession strategy to achieve desired goals and outcomes.
A feasibility study will analyze key concerns such as:
- Anticipated range of value of the Company for ESOP transaction purposes
- Transaction structure(s) for the purchase of shares from shareholders
- Available finance and funding structures to acquire Company stock from shareholders
- Availability and key terms and conditions of potential senior and/or seller financing to be provided in the transaction
- Impact of an ESOP transaction on the Company’s cash flow and financial position
- Analysis of Sellers’ tax-effected cash flow resulting from (i) the sale of Company stock; and (ii) the financing of that sale
- Management and executive compensation issues including use of stock appreciation rights or other synthetic equity
- Structure of the internal loan between the Company and the ESOP
- Comparison of “S” Corporation vs. “C” Corporation transaction structures
- The goal is to create a roadmap to develop a transaction structure and price that is fair to the Company shareholders, workable for an ESOP transaction, and manageable for the Company