Employee Ownership for Self Funded Search?

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December 08, 2024

by an investor from University of Colorado at Boulder in Durango, CO, USA

Has anyone explored adding any element of employee ownership to an acquired business upon purchasing it through a self funded search?
Thanks!

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Reply by a searcher
from University of California, Berkeley in Oakland, CA, USA
In the case of an ESOP (or other broad-based employee ownership structure), If there is a fund that can come in with mezzanine capital alongside bank senior debt, the larger seller note issue can be addressed. There are many great funds in the employee ownership space (^redacted‌ at Small Capital can share more about what they're up to) that are bridging the gaps of the challenges that Mike describes in creative ways. Would love to know if anyone in the self funded search space is interested in integrating employee ownership of some form (can be an ESOP but there are also other approaches that work with less regulatory overhead), as it can reap huge benefits to have a high engagement culture tied to actual ownership by the workforce. ‌
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Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
ESOP is a great idea if it can be done. But the odds of doing ESOP by an outside buyer for a small company are between zero and very small. ESOP works if the business is asset heavy relative to profit, if seller is willing to take a large note and someone is willing to give PG. If all employees own the company, which is a must in ESOP, who will want to give PG?
I have gone through this charade many times with sellers who have spent years and $ to come back to reality. I have sold businesses with ESOP, and I have recently sold a business to an ESOP.
Giving ownership to some employees is a different matter. Currently, for a business with no assets, I have come up with a structure to satisfy seller's desire to have few employees become part owner as part of the sale and buyer who is willing to do that.
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