ESOP Feasibility

Our ESOP feasibility study can determine if an ESOP is right for your company and help engineer the appropriate design for success.

An Employee Stock Ownership Plan (ESOP) may be a great alternative for business owners who are contemplating liquidity, succession and legacy. As you know, there are many types of ownership transition strategies, including:

  • Selling internally to an ESOP, a management group, or a combination of the two
  • Selling the company to a competitor or private equity firm
  • Merging with another company
  • Going public
  • Transferring the business to family
  • Liquidating

SES ESOP Strategies can help you explore the feasibility of these options and help you find the right fit for your strategic goals.

ESOP Transaction Analysis

An ESOP feasibility study or transaction analysis is an important first step in providing shareholders with a blueprint of what an ESOP transaction might look like. It provides shareholders and key advisors with the information they need to make an informed decision and determine if an ESOP is the right liquidity and succession strategy to achieve the desired goals and outcomes.

A feasibility study analyzes 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
  • Debt capacity, including 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 the 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

Along with assessing the impact of the ESOP on its shareholders, the sponsoring company, the employees and the ESOP itself, the company’s debt borrowing capacity and future cash flows must be taken into account. The goal is to create a roadmap to develop a transaction structure and price that is fair to the company’s shareholders, workable for an ESOP transaction and manageable for the company itself while also complying with the ESOP requirements mandated by the Internal Revenue Service and the U.S. Department of Labor.