Anyone with experience using ROBS for acquisition?
November 07, 2024
by a searcher from Northwestern University - Kellogg School of Management in Hinsdale, IL, USA
Learning more about the ROBS option to fund my equity portion of a potential acquisition and discussed the process with Guidant Financial. Anyone with experience using either/both?
from University of Pennsylvania in Portland, OR, USA
Guidant can reliably crank out the legal documents for a basic scenario using the boilerplate their clever lawyers wrote 15+ years ago. After setup, support is an impersonal ticket system with file requests via a basic online portal. They were overwhelmed by the complexity of supporting the annual reporting requirements for a 401(k) with dozens of participants and missed deadlines. Guidant also failed to fully advise me on the implications of plan structure on my high earning employees in an organization where compensation ranges from entry-level, hourly laborers to a handful of sales people and leaders at $175K+. We failed the highly-compensated-employee test and had to cap contributions to maintain compliance with the IRS. The plan is now converted to a safe harbor plan and this is not an issue. Their prototypical client is a transitioning corporate middle-manager rolling funds to startup a very small, greenfield franchise with no plans to buyout the ROBS later and, at most, a handful of employees who join the 401(k). If your acquisition scenario is more complex I recommend investigating boutique providers and asking hard questions about after-sale support.
from Purdue University in Overland Park, KS, USA
No experience w/ Guidant but was recommended to touch base with Mickey @ AcceleFund - local to me. They've provided great insights into the ROBS program.
The only caveat that I saw about ROBS is that it's probably not worth pursuing if the 401k balance is <$50k. Other than that, the fees seemed to be nominal.
From an operations perspective, need to be careful about your personal separation from the business. Some business owners mix personal and business expenses, which might be OK in a typical private company, but with ROBS - this could be a violation of IRS tax requirements since we're talking pre-tax money being invested. Expenses affect dividends into the self-directed 401k which in turn affects cap gains tax that IRS will assess upon liquidation of the fund.
Would love to hear if you have other insights on the ROBS program as a searcher.