ESOP Mergers, Acquisitions, & More
Employee-owned companies face unique complications when looking to acquire, sell, merge or make other ownership structure changes. We have developed a specialty in helping navigate those challenges to create optimum results. All of our services are available to ESOP companies, but with the assurance you have a team to help navigate the complexities that come with “employee-owned”.
If your ESOP Company is looking to make acquisitions, please add yourself to our “ESOPs Looking to Acquire - Database” so we can contact you about opportunities that fit your objectives.
Acquire or Sell
If your ESOP is in acquisition mode, please register in our database so you can be alerted of potential acquisitions fitting your needs.
Strategic Sale/Purchase
A strategic purchase is completed by an individual or company in a unique position to leverage the company beyond its financial value. In M&A math, this is where 1+1 > 2. This may be a simple consolidation/reduction in expenses or more likely, it creates a new market, marketing strategy, or some other synergy with a complementary product or service already offered by the purchasing company. For maximum value, sellers should focus on potential strategic buyers first. When ESOPs sell, we are often able to get the employee shareholders greater than 2x the pre-sale value of their shares when selling to a strategic buyer.
Financial Sale/Purchase
When a business sells primarily based on earnings history and growth rate translated into future earnings expectations, this is a financial purchase. In this scenario, a lender and buyer would generally expect a purchase price that would pay the owner a salary while covering debt service of 5 - 7 year amortization (excluding any real estate - which is valued separately). This type of transaction is the most common in the industry. Even with a financial sale, ESOP participants are often surprised when the post-sale share value is 20% to 80% greater than the pre-sale value.
Distressed Sale/Purchase
As the name implies, this is the least desirable type of sale for a business, but could be the most desirable type of acquisition. In a distressed sale, typically the business does not generate a large enough profit to cover debt service for the assets. In this scenario, businesses typically sell for close to their liquidation value… which sits between the assets’ fair market value and auction value. Acquisitions of distressed businesses need a clear gameplan for turnaround and improvement and bank debt to fund the acquisition may be more difficult.
Optimum Transitions Transitions Advisors can assist clients in moving a business that might have sold as a Distressed Sale to a Financial Sale or from a Financial Sale to a Strategic Sale. Owners who are willing to wait a few years to sell and put in the time and effort to improve the business are great candidates for increasing the sale price through our Business Lifecycle Enrichment Services.
Merger or Alliance
Merge
When two companies with synergistic client bases both wish to continue forward in business, but see a strategic advantage toward being one company, a merger is a great option. The end result is a single company comprised of the assets, people, client list, and goodwill with the end result being more effective at attaining business goals than either company could be operating independently. Under a merger, equity participation continues by most (if not all) of the original owners of the two independent companies.
Align (Alliance)
An alliance is similar to a merger in that the two companies believe they’re stronger as a result of a formal relationship between them. The difference being, in an alliance, separate entities continue for each of the companies. While equity may change hands as part of the alliance, it is not a requirement to be an alliance. The only requirement is a formally defined agreement between the parties on how they’ll work together to the benefit of each.
Exit
Succession planning is the advanced preparation for the top business leaders’ eventual exit. This is crucial in any type of company, but especially crucial for ESOPs as most ESOPs are created with longevity in mind, which requires consistent succession planning to support that longevity. We can help you evaluate possible options and help craft a strategy that helps ensure the optimal scenario for the employee-owned company. At a minimum, this can include evaluating prospective future leaders and systematically preparing them to take over the reins.
Succession Planning
Sell to Outsider
There are several outsiders interested in owning your business. This may include a strategic addition to a business they already own, an investment opportunity with greater return than publicly traded companies offer, or someone who wishes to move from being an employee to being a business owner. Optimum Transitions consultants can discretely advertise your business for sale finding the right outside buyer while avoiding jeopardizing the business by vendors, employees, and customers learning of the proposed sale. This can happen for a variety of reasons in an ESOP. On common situation is when Succession Planning has failed for whatever reason and there are no good options for future leadership keeping the ESOP viable.
Take Public
For businesses that qualify, going public can be the best way to execute a growth strategy while creating liquidity for shareholders. Our consultants will help qualified companies determine which markets (US or abroad) fit the ESOPs situation and goals. Utilizing alliances, we can document and complete the process alongside the existing management.
Creating An ESOP
Evaluation
When considering if an ESOP is a valuable exit strategy and/or employee benefit plan the first step is to get clear on what the owner(s) are trying to accomplish. Optimum Transitions’ proven goals identification process helps owner(s) clarify their goals and determine if partial or 100% Employee Ownership is a good option for their business.
Professionals Selection & Project Management
Any type of transition is time consuming, and an ESOP is no different. Having a seasoned project manager by your side means you can continue running the day-to-day of your business while creating the ESOP. Transitions Advisors will help you select the team of professionals required to put the ESOP in place and help manage the project (and fees) to try and create an optimum transition. We can also help with employee messaging and securing buy in from the employees.