By Lian Gravelle, Esq.
Many business owners know of someone who sold their business for 10x its value and assume they will receive the same. The owners seek a competitor or customer seeking a synergy who would pay a strategic premium. Unfortunately, strategic buyers are few and far between.
For some owners, the fair market value of their business is enough — or they do not wish to auction their company. Most owners are unaware of an alternative. An employee-stock ownership plan (ESOP) offers another solution which allows the owner to sell the company for a financial price.
ESOPs pay fair market value for the shares of a company, as determined by an independent valuator and trustee after a thorough due diligence process and negotiation of the purchase price. A third party buyer will perform the same review. An ESOP cannot pay a strategic premium, but any business who knows or worries that a strategic buyer will never appear should explore this option. Unlike a sale through an investment bank, an ESOP transaction rarely involves a large success fee on the sale of the company.
Unless a truly strategic buyer already exists, an ESOP offers a business owner a financial price for the shares of his company and should be explored as an option. An ESOP may not be the right move for you, but you should consider a sale to an ESOP in any succession plan.
Lian Gravelle, Esq., is an ESOP compliance counsel who works at ESOP Plus®: Schatz Brown Glassman LLP in Rochester. Visit www.esopplus.com or email firstname.lastname@example.org.