Structuring M&A and Private Equity Sales Involving ESOPs: Evaluating Advantages and Risks, Best Practices for Structuring the Deal

February 7, 2024 at 1:00pm2:30pm (EDT)

ESOPs provide an alternative strategy for selling a business. ESOPs allow company owners to cash out of their businesses and receive pre-tax dollars that are deferred from taxation, while simultaneously rewarding the employees who helped build the business. When structuring a deal, counsel should consider the advantages and risks of using leveraged ESOPs as an option for transitioning the ownership of a business. Counsel must also understand the mechanics of structuring a leveraged ESOP transaction.

The benefits of using ESOPs in structuring deals include the opportunity to execute a partial rather than complete sale, significant tax advantages, increased cash flow, strong employee benefits and the ability to attract seller financing, including SBA loan incentives for eligible businesses. Drawbacks to the ESOP structure are the increased regulatory and compliance mandates that need to be addressed by an ESOP company and the potential for ESOP litigation.

David Johanson, senior partner at Hawkins Parnell & Young, will examine the growing use of leveraged ESOPs as an option to move acquisitions, divestitures, and private equity sales forward in today’s market. The panel will discuss the pros and cons of the structure and considerations for counsel when structuring deals with ESOPs.

The panel will discuss these and other key issues:

  • What are the latest trends in the use of ESOPs in structuring acquisitions, divestitures, and private equity sales?
  • What are the tax and other benefits of using leveraged ESOPs in structuring deals? What are the downsides of the ESOP structure?
  • What are the mechanics of structuring a leveraged ESOP transaction?