Acquiring an ESOP Owned Company

searcher profile

October 01, 2019

by a searcher from University of Pennsylvania - The Wharton School in Silicon Valley, CA, USA

Has anyone encountered a target that is ESOP owned, or can anyone comment on what acquiring an ESOP owned company would look like? I met a founder/owner who is retiring, and is gradually moving his ownership to employees in an ESOP model. I'm interested in the company, but unsure how the ESOP structure may hinder my efforts to acquire. Advice appreciated!

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commentor profile
Reply by a professional
from Fordham University in New York, NY, USA
Bret, if you are buying a company that is wholly or partially owed by an ESOP, the tax-qualified trust that holds the ESOP stock will be the seller. The trustee of such trust is usually an independent trustee. For purposes of the transaction, this trustee should engage an independent appraiser to determine, in accordance with ERISA requirements, the fair market value of the company stock. This is not necessarily a barrier to the transaction, but there are numerous issues and ERISA fiduciary matters to be aware of. I have extensive experience in this area, and my law firm regularly handles such transactions. Please reach out if you need further guidance.
commentor profile
Reply by a professional
in New York, NY, USA
Really make sure he's interested in selling the company, often times an esop model is used as a defensive strategy to protect against a takeover. Make sure that they're not establishing an ESOP for the employees of the corporation to hold ownership in the company.

In turn, this means that a greater percentage of the company will likely be owned by people that will vote in conjunction with the views of the target company’s management rather than with the interests of a potential acquirer you the buyer.

Hope this helps what to look out for.
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