EP17 - Perfect Storm - ESOP Tsunami - predicting many more ESOPs over next ten years

Good day everyone. This is the ESOP guy, and we are on a journey to an ESOP. So glad you could join us today. I wanted to start off and really just say thank you so much for listening to this podcast. I really appreciate you just stopping and listening and taking a step towards your future if you are considering going towards an employee stock ownership plan. For your business. I've had such a good time doing this and today I get to do this podcast and then we're going as a firm, our CPA firm off to the beach, which is something we get to do in Florida and celebrate the deadline and being done with that part, part of the deadline, which will be a blast. So, but before I do that, I wanted to, I wanted to put this together and keep this podcast going. And one of the things I wanted to say before we got into it, it just, it's been such a privilege. I've had so many different people as I start to, we go into season two with the episode and starting to talk to people that are, that are following the podcast, it's, it's really Exciting for me because, and I would say encouraging because there's people that are learning, you know, about ESOPs and really applying them to their potential business strategy. So, again, thank you for listening. If you have an interest in our other episodes, please go to journey to an ESOP.com. So with that, I'm gonna start with with this. Now that I think about it, when I watch that, and I'm going to the beach today, it's kind of scary. So, um, but the skies look good. This, this is from a movie called The Perfect Storm, and we're gonna use it for our title of our podcast today. So it's gonna be called The Perfect Storm, ESOP Tsunami, Real or fiction. This episode is gonna focus on the predicted number of ESOP deals coming in the next 10 years. Is this a myth? Or is it made up by advisors who just want to do more work, or is it real? And why? Why would we think that there's more coming? So we're gonna, we're going to go into uh an episode where we're going to go through ESOP trends and I'm going to pull, pull together some Some facts and some data and talk through that with you to and out of that, I think is going to come, what, you know, we talk about why, I think you're going to become some of the ESOP reasons like, what, why does this make sense for us to even think about using an ESOP. Before I do that, I wanted to put a plug out there for my ESOP Guy live webinar series, which has been underway. We're going to start um our fourth one in the end of June, June 30th at 2 p.m. Eastern time. So look at that, register, go to our website at journey to an ESOP.com to register for those to get a little more information on how ESOPs apply to your company. Um, again, as I always say, if you like what you hear, please subscribe and because we're a community of people, uh, help a friend by just sending them the podcasts if they're thinking or if you know that they're thinking about possibly using an ESOP. So first, let me start off with this, the movie, A Perfect Storm. Why am I using that? Um, it stars George Clooney. It's really a tough movie to watch if you haven't seen it. I won't spoil it. Um, but I will tell you that these guys go fishing and take some crazy risks to go out beyond what they should. And then unfortunately, they through all kinds of circumstances, they get caught in the worst storm of a of of a lifetime, right? It's the perfect storm, quote unquote. Um, this scene that I played is very tough because as they think they're almost out of the storm. Um, so right at the beginning of that scene, like the sun breaks out and like, whoa, then this huge wave, um, comes out and everything gets dark again and it takes them down. So I guess I just spoiled it. Sorry. Um, but it's a really good movie in the sense of, wow, that, it's tremendous when you start thinking about what the world. Um, what the world climate is and, and how we are just like these little, um, people that can't control anything, you know, we are subject to all the, all the things that can happen in the climate. So, and I don't want to take this, this point to be negative. I think it's, it's really to help us to think about things in different ways. But I wanted to transition that into the idea that when we start thinking about what can happen, As we move from like, yeah, that was a really tough and tragic movie, but to think about how um the the potential for what is going to happen in the ESOP world, um, being there being a perfect storm for ESOPs, so to say. And this actually really is a great thing. I think in in my mind and in many others, um, there are some that say we are really beginning at just the beginning of what we call an ESOP tsunami. The fact that you're listening to this podcast, I just want to say proves kind of my point, right? So let me go, let me start off a little bit deeper with my background and, and just talk a little bit about kind of as, as I think about the, the topic itself. And when we start talking about what's going to happen in the future, and nobody knows, right? Nobody ever knows, but I started off, you know, I'm, I'm right now in my career, I've been at this CPA firm for say 20, almost 21 years. I'm a partner in this firm. Ironically, I'm not an accountant. I went to school for economics, I took accounting classes. I hated accounting. And to be honest with you, I still kind of do. Um, it's necessary, but the math of economics is really more about trying to estimate what could happen. Generally given certain variables as opposed to the math of accounting is to really kind of tell you what did happen or kind of give you the historical perspective on things. And in accounting, people love to do things down to the penny. Economics, it's like we just want to model it out and have, say, this is the predictive trend. So, so there's a spirit of that in this episode that says, hey, we're just kind of taking some information. And, you know, whether I'm wrong or I'm right, I don't really think that that matters. It's, it's the why behind it all. So that's what we what we hope to really extract from this podcast episode. So what we're going to be doing though is I'm not doing it on my own. I'm gonna take some expert articles, people that have written articles and different advice, and then really thinking about these and pulling it together to, to come up with a hopefully a conclusion. So let's start off with one of the, one of the greatest publishers of of information for ESOPs is the National Center of Employee Ownership. And recently, they produced an article that gave us, it gave us an overall, you know, state of the union or state of the ESOP world that we have. And, and this is something that we've talked about before, so this will be a statistic we've already said before, but there's roughly around 6600 existing employee stock ownership plans. And out of the entire country, and there's, there's really ESOPs that are dispersed, you know, in this map that they have, you know, really all over the country, there's, there's a, a concentration of ESOPs geographically in the Northeast, um, and in the Midwest. Um, there's also another concentration of ESOPs in the uh state of California in the west, and then there's, it's kind of dispersion from there all over. There isn't any reason specifically for that. There's no, there's the same tax law for the entire United States. So it's not, it's not like, oh, you know, people in the Northeast, um, you know, have something that other people don't have. The one thing, one thing that people in the Northeast and in California do have, I think that does stimulate, and this is going to be a point as we start thinking about it, the thought process behind ESOPs is they have a higher tax rate. And because they have a higher tax rate, they're going to be more keen to look at tax benefits when they're thinking about their ESOP transaction, not just, not just from the standpoint of the selling shareholder, but also obviously for the standpoint of the existing ESOP as part of a sustainable model. And so if you're paying a lot more taxes, guess what? With an ESOP, you can have a lot more cash flow available to pay the debt down, to invest in growth and so there's obviously reasons there. That maybe the dispersion happens. So covering, you know, ESOP, so 6600 employee stock ownership plans, but it covers more than 14 million participants. So a participant is an employee that is part of an ESOP company, so 14 million over the entire country. So I think that's pretty, pretty cool number. Um, and, and I think it's important, and I don't know how what's going to happen in the future with the ESOP guy and the podcast, but, you know, say we're in season 10, you know, in 10 years from now or whatever. Um, roughly, what I would love to see if I'm right now is thinking, you know, that number of 6600 goes up. Now, one thing to understand about ESOPs is, is, as many that get created, there are always companies, ESOP companies that are selling every year too. So there's always this coming in and coming out type of thing. Um, so, but net net net, it would be nice to see more and more companies, which really, there is no reason why they shouldn't. Um, so that's, that's the state. Now, they estimate that roughly 9 million employees participate in plans that provide stock options and other individual equities to most of their employees. So, I think there's also an idea behind this that in addition to ESOPs, you have other types of um employee type of stock that people can participate in employee stock purchase plan that doesn't have the same framework as what an employee stock ownership plan has. So when we overlap that, we have approximately 32 million, um, so 9 million plus 5 million to participate participate in 401Ks, 32 million employees that participate. In, in some type of employee ownership plan throughout the United States. So Um, so that really kind of helps us to understand what we have as far as statistically where we are right now in terms of, of how many and what's the, what's the impact to the country in terms of, of ESOPs and and number of number of employee participants. So about 2/3 of ESOPs though are used to provide a market for the shares of a departing owner or or of a profitable closely held company. Most of the remaining um shares are used, um, or most of the remaining ESOPs are used either as a supplemental employee benefit plan, um, as a means to help borrow money in a tax favored position. Less than 10% of the plans are in public companies. So, in contrast, stock options or other equity compensation plans are used primarily in public firms as an employee benefit and rapidly growing private companies. So, so really thinking about this from more of the private sector in terms of how they're used. Now, another statistic that I think's important is, and I've and I referenced this in different ways in other podcasts, but I want to build the the foundation as we go into the, the potential trends. And I think this is important in a 2000 Rutgers study, um, they found that ESOP companies grow 2.3% to 2.4% faster after setting up their ESOP plan than would have been expected without it. Companies that combine employee ownership with employee workplace participation programs show an even more substantial gain in performance. So with that, I think one of the, one of the key attributes of ESOP companies statistically, that's going to be talked about all the time, is that they outperform um other non ESOP companies. And I think that will be very helpful. Um, to remember as we start thinking about, you know, the potential behind financing an ESOP company, um, or with acquisition debt or financing a non-ESOP company with acquisition debt, because one of the things we're going to get into is the, is the aging of company owners in the baby boomer population. So we'll come back to that. Participants in ESOPs do well. So the other side of this is what is what happened. So in a 1997 Washington State study found that ESOP participants made 5% to 12% more in wages and almost 3 times the retirement assets. So this, this number gets thrown around a lot, but, but, but keep in mind that employees are going to be in a better position in general than when compared to non ESOP companies. So employees that participate in ESOP companies are going to be in better in general better shape. Um, again, those are important statistics because We start thinking about um the, the proposition behind an ESOP, um, I think, I think one of the things I want, I want to say in this podcast is I think, I think the major reason why there's not more ESOPs is because there's not enough information out there about how ESOPs work. I think, and plus there's, there's all, there's wrong. Information too. So that's one of the missions that we're on with this, with this podcast is to start debunking the myths, providing good, clear information, providing information that's really helpful as opposed to, you know, throwing up all this stuff and saying, all right, now you sort through it and figure out where you, where you, um, you know, sit. Now I'm sorry if that was a gross analogy, but it, it's, I don't know if you're eating lunch or whatever, but Um, anyway, so, so keeping that in mind, it's, it's really good for the company and it's really good for the employees when you look at those statistics. Now, going into some of the other parts of this is that the ESOPs really are found in all kinds of sizes of companies. So some, and we're going to note some of the things that public supermarkets is one that we've talked about with over 200,000 employees. Um, a company called Amstead Industries, 18,000 employees, um. Al Gore, um, who makes Gore-Tex, 10,720 employees, Davey Tree expert, 10,500 employees. So very large ESOPs and very, very small ones that you probably won't hear of because they're, they're small, closely held, they were transition from small closely held companies with 50 employees or 100 employees and even smaller than that. So, so what's cool about the ESOP world? is that it is a stratosphere of very small to very large companies. And so that creates this community of of companies in the ESOP realm that really do function um quite well together and and and because they the the truth behind ESOPs really applies to a lot of different levels of of Companies and so that gives us flexibility and open mindedness to hey, what makes a good company, um, as an ESOP, and I'm, I'm just going to say that um I think most any companies do as long as the culture embraces what an ESOP is, um, there's just really no, there's no limit to it. I don't think you can put this into a box and say it's only for for those types of companies. So with that, I want to go into um this other, this other article that we went through and it's called As Baby Boomers Retire, Main Street could face a tsunami of change. So keeping with our storm theme that we have. And the article points out that There really are a tremendous amount of baby boomers. So baby boomer business owners, and that's pardon my alliteration, baby boomer business owners are retiring in record numbers. And what the article points out, this is fueling a dramatic paradigm shift. And we talk about Main Street, we're talking about a lot of these small business, medium sized businesses that are closely held. The article points out that boomers, baby boomers own 2.3 million small businesses in the United States. Now, we have 6600 ESOP companies, OK? And they own 2.3 million. And that, I just want to set that for, uh, you know, just hover on that for a second. That is a tremendous amount of companies. And in that group of companies, they employ more than 25 million people. So, it that and think about the population of, of what we talked about before, there is a tremendous amount of opportunity here that I want to point out, um, that not saying that every single 2.34 million of these small businesses is going to be qualifying for an EAP, but, but guys, there's so many that, that possibly could. And so, We are really at a crossroads in this country. And um one of the, one of the parts of this, I think is important. And again, it comes back to what I think is really an important part of the mission that we're on for this ESOP podcast, is to really kind of create an awareness and an urgency, like, let's just say the urgency behind what people need to be thinking about. Um, if they're one of those baby boomers that have one of those 2.3 million businesses and they're sitting there thinking, well, um, I, I don't have any plans. So in a recent survey, part of this article, it showed that more than 58% of small business business owners, 58%, so we're more than half have no transition or succession plan. Now, that's a bit, now the article goes in like, that's a bit scary, right? Because when we start thinking about that, um, I'm not scared about it and like I might be like George Clooney in the perfect storm and just like whatever, but they're, they're concerned about that because let's just say what they're bringing out is, is the, is the point that the consequence of a failed succession plan. Directly impacts then this many employees. So we have 25 million people working in these companies. So, and more than 58% don't have a succession plan. So, so I think their assumption is, is that, hey, they're just gonna fall off the face of the earth if they don't have a succession plan. Most likely something's gonna happen, right? And it may, it may not be the company shuts down, it may be that there's, you know, maybe a lack of value that goes, they go through a uh a period where the You know, all kinds of things can happen. They don't have a succession plan and the owner's disabled, and then they go through this, this, this trough and then the company comes back. So I don't, I'm not as worried about that, but I do think it's really an important. Statistic because, you know, let's just say that they're right in the article. Um, you have tens of millions of additional vendors, suppliers, partners, contractors, other, other companies that that are in working with these other businesses. And so certainly, um, if we took this at its purest notion that said, if the succession plan is the key critical success factor for the future and they don't have it, yeah, we, we could have an economic crisis. But Again, I'm, I'm more realistic. I think what happens is, is that there's a sense of urgency that is created out of necessity, so someone's health goes down. And I think even as we go into some of the other parts of this podcast, there's been indicate there's been a catalyst that I think over the last year has changed. And so that's already, you're already seeing these things with um the reality of it. Um, one of the things I like to, to uh compare this to is being a parent. And so being a parent is you're telling your kid, you got a plan for college, you know, you're gonna plan for, you know, your, what you're going to do with your career, you need to plan for all these things. Now your kids always, not always, but maybe my kids are the, you know, they don't do this, but they don't always listen to you, right? And you're like, uh, until the sense of urgency comes upon them, right, until they start to realize and they're, they're paying their own bills. Um, and they're starting to realize life is kind of hard and it would be better, you know, for me to plan this. So I always say as a parent, reality is the best teacher, right? And so it's the same thing with succession planning and baby boomers that are really not ready to, um, to leave, and then knock on the door. Where is hey, something happens. And so, so we can just kind of like, pull that together and say, you know what, reality is going to be the best teacher here and we we don't have to worry about it, um, freaking everybody out or or creating this fear factor. Hey, you better do this or everything's going to go down. I just want to make the point of this article. And then think about some of the other aspects that come about. Um, about like late planning, right? So I think if, if you do plan things but you only have a year to plan. It may not be the best plan for you when you get down to it. You may have had, you know, if you did a 5 year plan before you started, you may have a better possibility of increasing your valuation. You may have a better possibility of having a better management succession program where you have less and less disruption in the company. So all of those are going to be things that are true when you think about it. One of the things this article points out that I think is really a good indicator of why I think ESOPs are going to be um potential tsunami over the next 10 years is They point out this socioeconomic trend. And what they're saying is that what, what was happening in the um culture, the cultural movements, because you have all these different new generations. Now, when we talk about generations, let's just go into like we got baby boomers, you got Gen X, which is me, you've got uh millennials and then you got this Gen Z. So I'm not a generational business expert. I've had people like I've gone to conferences and people talk about this all the time. Um, but I will tell you that there's a consensus in the population of business people that are starting to see that there is not a, a strong desire in in in aggregate of the of the younger generations to repeat the same amount of effort and risk and toil that goes into Um, not only like starting your business, um, or founding your business, but keeping it running and doing the, the day in, day out grind of, of running a business. Um, I think that younger generations have seen their, that they are growing up in the business, you know, their parents are running the business, are seeing that, you know, mom and dad worked their brains out. Or um if it was the second generation, you know, their grandparents did and then their mom and dad did or whatever, they're seeing that. They don't, they don't, their value system is changing. So my point here is that um they're not as interested in buying mom and dad out. And now I know that 2.3 million businesses that we just referenced are not all family businesses and they're not always family people there, but just think in general, a lot of these smaller companies, Do you have more family members in them. I personally, as an ESOP consultant have gone through this with clients where they're like, you know, my, my kids just don't have a desire to buy it out like, well, then let's just go ESOP, right? Because they can still be part of the company, they can still be part of what the company's doing if they so choose, if they like the work, but they don't have to take on the, the headache or the risk or you know, all of those things, or Maybe you look at a hybrid, and they don't take on all of it. There's a, there's a shared responsibility and they have less risk going into it. But I think that it, that cultural movement towards the idea that there's less, these generations that are coming up and, and I don't want to at all like do this millennial thing where we, we just kind of stomp on the millennials. I think millennials are fabulous people. They're very bright. They just have a desire for maybe more more balanced than previous generations, but I think that's a very big factor when we're predicting, quote unquote, what's going to happen in the future. So as less people want to do buying direct ownership with a say management buyout, then you're going to have more baby boomers that are selling their businesses, looking for a viable option that continues other things that they really do find important, which an ESOP provides, and a few of those to name them as, hey, my business. I care about my, my people. I don't want to sell it to a third party, a strategic buyer, uh, a private equity group that's gonna roll it up and shut it down, where these jobs are gonna go away. So that's part of it. Um, hey, I, I want the legacy of my business, like what I built, I wanted to continue on and on and on and Um, oh, or he, by the way, I'm a selling shareholder and I want the tax benefits that come from an ESOP, and I can't get that in another deal. So I think those are the generational pieces definitely gonna contribute um to more and more ESOPs as we go. So, there is such a real issue when we start into when we go into planning with a company that has a family structure as we as we discussed. Um and so as we talk about that, I I think that is going to play out in terms of more and more ESOPs. Um, the next article that I want to talk about, and I recently put this on LinkedIn, I just thought it was really a good article and it kind of, it's, it really honestly encouraged me to do this episode because I was, as I was reading and I was thinking about the, the future more, um, and also looking at what's happening this year too, and I, so I started to really agree with what this author was saying. So this, this comes from Forbes magazine and it's entitled 2021 could launch the Decade of the ESOP. So the article really first points out the impact of what has happened with COVID-19, and what it has done to the marketplace and The interesting part about COVID-19 for me personally is I, I really did in February of 2020, I kicked off this podcast. So I started this podcast and I really started a lot of my ESOP advisory work at the, you know, the beginning of COVID. And so when going through that whole process of last year, um, this is really an interesting point that that this this author is making. Um. COVID-19 at that point had ground financing activity to a halt. If you remember, um talking to bankers back then, what were they thinking about? They were, they were mostly chasing down this slurry of PPP and EIP loan programs. I mean, in some, and that's all they could do to just keep up with the amount of PPP applications that they had. So there was also this reaction of, you know, the market, um, based on the opinion that that, um, There's, there was this sense of, hey, things are going to tighten and the banks are doing this, but we're really preparing for COVID-19 um pandemic economic recession, like we're moving into another great recession. So if you, if anybody can go back in time, I can tell you that's what was, what was on the minds of people and they were as they were thinking about it. Um, the bankers I was talking to were anticipating higher risk ratings. They were anticipating more conservative lending policies, preemptive measures really to um protect the bank's loans from possible big problems. So now what happened was at the 4th by the 4th quarter, lender confidence really started to return. Um, I think all the PPP money that went out. Um, was, was basically this big shot in the arm for business owners to keep, keep things moving. And so the article points out, even when we were surprised when the second half set up the um second half set deal volume, we basically set deal volume records in the second half of the year. Nobody knew that was going to happen. And so what, what happened was when they, they shifted the banking community, the lenders shifted from a very conservative. Position. And then they, they then pivoted and then started doing more and more deals. And then in 2021, that discontinued. Um, they, they were finding that they actually had over reserved for loan losses. And so that's a big deal because I think the reaction Of the market, basically averted a major business disaster and then provided this because it, it didn't happen, the stronger sense of calm and confidence. And, and I want to make a point here really quick, is that the COVID-19, of course, did disrupt a lot of businesses across America that and still are trying to trying to recover. The issue with COVID-19 as as an economic disruption was that it was very industry specific. And so what I mean by that is that it affected negatively, of course, restaurants, and of course, travel, and entertainment, those types of industries, but pocketed around that, there are other industries that actually thrived in COVID-19. So in aggregate, when I'm talking about what I'm saying here, it's an aggregate of the total economy that actually was much stronger, even through 2020 than people thought, you know, thought was possible. And so, So that's an important part of it because um this really did plant some seeds for a record 2021, which now we're five months into and beyond because the private company credit market had this overhang of capital, which just means this um amount of capital that they just didn't lend out for purposes. And now, um, as we look at it now, finance and banking and lending is are part of the equation. So when we start looking at The economy as we, as we know it, and I literally have had, I don't know how many conversations with existing clients that are being pursued by, by private equity. I mean, it's crazy right now how many deals are being thrown around and looked at. Um, so there's, there's a truth to this, that there's a finite number of deals out there for both M&A and ESOPs when you start thinking about. The amount of transactions or a lot of competition for that. And there's a lot of opportunity to finance those because all of this, um, all these banks have, have held back and now they want to hit some loan volume. And that's a good, that's a good part of when we start thinking about the possibility or trends towards more ESOP deals because That what that's doing is, is it moves itself through the economy, it is we've relieved this heavy concern, and now valuations and projections are starting to um open up. And what I mean by that is they're improving um as the opportunities improve. So we're seeing higher multiples in valuations that are driven up and those are going to add to um possible higher multiples for ESOPs as well when they start looking at the comparative. Data, um, and apply that to the possible evaluations. So COVID-19, as we start thinking about its impact, um, really was, you know, from a finance standpoint, you know, definitely contributed to, I think, a stronger 2021, but that doesn't really take us over the next 10 years, right? But I think what it did is it also stimulated some reality. So another interesting point of the article is that, is that how COVID, um, really was a wake up call, you know, as we talked about this a little bit earlier on in the in the podcast episode, it's a wake up call to entrepreneurs to say, are selling shareholders to say, you know, in, in what they have in their holdings right now, and this is really important. So listen, they, you know, if a business owner, And we start thinking about the possibilities and getting smaller, the smaller the business, the more true this is, that as the business owner starts thinking about where is their net worth. So 90% plus of their net worth is, is caught up and hung up in their business. You know what I mean, that's, I don't mean that's a bad thing, but I think it's just the truth. COVID hit, they started thinking about, wow, I need to diversify my holdings, right? And so, what is really true of COVID and other things, I would say earth shattering events, and it could be things that are personal in nature, it could be things that happen within your family or your friends or When you start thinking about, you know, what you're doing with your time, um, when maybe, maybe there's a health crisis. Other types of catalysts of change definitely shake people up a little bit. Um, but, but partly, it's not just to diversify their wealth. It's to, it's to realize that the quality of time they have left in this, on this earth. And what are their priorities in terms of, of what they want to do with their time. So I do think that COVID was an impetus and a catalyst of thinking differently about their, their time. And so I think that is going and has launched us into Um, notable changes in terms of this, when we go back to the one article of 2.3 million business business owners, where maybe that statistic is lower than 58% now, maybe a lot more people are thinking about it. And I know that in the finance community, um, within banks, within, um, insurance circles within uh CPAs of attorneys, this succession plan stuff is being talked about more and more. So in this one article, what they don't, what they noted is um that they saw an increase in their own inquiries for ESOPs, um which has tripled in over the last several months. So we're, we're, I think we're all agreeing that that's happening throughout the country. So, so when they're, you know, as we, as we think about there might be other reasons, but I do think it was definitely a strong, a strong point, um, as far as that goes, as far as COVID impacting and being a catalyst. One of the interesting parts of the article too as we explore other, other motivations is in terms of people thinking about ESOP is that they referenced. You know, the tax benefits of the 1042, um, they referenced a case study where the, uh, they had a client who went all the way through the M&A process, which just means that they were selling their business to a third party. And in the 11th hour, this company pivots and it says, you know what, I'd rather do an ESOP. And so why would they do that? And Um, why would anybody stop all that? They spent all this money and whatever, um, because the private and family business sellers, you know, didn't know that an ESOP was a compelling alternative and really at the outset for selling their business at a fair value, um, and while remaining independent. So it was just this awesome opportunity that they didn't know about. So part of it is the change in that one company is that they just found out more information, um. They were also unaware that ESOPs possessed the ability to create retirement wealth for their employees and support senior leadership recruiting and enable the owners to remain involved in their business. So, so these, these attributes, which honestly ESOP advisors probably take probably for granted, we don't talk about them enough, need to be talked about a lot. And they need to be part of our vocabulary when we start talking to people about ESOPs. I recently have been working through a new ESOP transaction and Um, this client had completely altered their original exit plan that that they had created. Once they really understood the value of an ESOP and how to apply it, you know, we had to go through some work to apply it to their specific objectives. But once we did, it made sense and, you know, and companies are changing the way they're thinking about it. And I, and that's really part of the whole point of this podcast is to help people understand at least, you know, what is out there. Um, the point is, education is so important and business owners are really needing to be educated on the benefits, um, that they're seeing. So You know, as I, as I think about that for us, I want, I want to kind of just talk about a little bit about some of the other aspects of, of what's happening in our economy, and pull it back together and say, all right, this is what we think is going to happen, like a good economist might. So the article really finishes by pointing out something that we discussed, you know, in a previous podcast, which I was, we went through ESOP Politics 101 and, and that is that the, the new administration has made moves by appointing specific people and this article points out Jared Bernstein as the economic adviser to the president, who is, if you know who he is, he's got a history of really supporting employee ownership. And because of that has um You know, and, and other people that the new administration has looked at, um, as a new appointees, we think that from a political environment standpoint, between this and that last podcast, that there's very strong, um, It support politically for the structure and, and we can't exist as an ESOP without the political support. That's the it's one of the bottom lines of, of how we we exist because the Internal Revenue Service, the Department of Labor, the Department of Labor and the and ERISA all recognizes the ESOP's ability to own stock on behalf, um, and have participants in ESOPs using the tax benefits from the IRS. So, Politics is very important, and politics is going, um, and it's never been a negative, so like going in the right direction with more and more support. Now, on the other side of that, still within the framework of the new administration, um, I think it's important to point out, there has been a frenzy of conversations and articles and discussions about the new tax legislation that's going to be Um, coming soon, right? And instead of freaking out about it, which, you know, like, hey, it's gonna cost, you know, it's gonna cost more. Um, in the future, right? We've, the government just spent $3 trillion plus they're already talking about spending a lot more, you know, on infrastructure programs and everything else. So not to get hung up on the weeds with that, understand that that we are going to be in this is the point from a 1010 year perspective, we are entering into a higher tax market or a higher tax rate environment. Sorry, that's the way it is. And I, and I wish it was different, honestly, cause I don't want to pay more taxes than I than I want to. Now, let's go over like specifically what we think that they're going to go after. They're going to go after a higher capital gains tax rate. What is the, what is an ESOP, you know, when we start thinking about the tax benefits of an ESOP, and we go right to the 1042 and say, well, now, if, if we have a tax, a capital gains tax rate of 20% and it goes up to 40%, that's double the taxes. If I can say double the amount of taxes by using an ESOP. Then I'm gonna, I'm going to be able to compare that to a private equity deal and these millions and millions of dollars of taxes that are going to be paid on a private equity deal suddenly vanish because they get deferred in that $1042. So that is that going to contribute to potentially more ESOPs down the road? And, and honestly, I'm going to say absolutely and You know, we're, we're crazy to think that's not gonna happen. And or look at the S corp. If a company's ordinary income tax, if ordinary income tax goes up and the um all the the tax provisions of all legislation go away, um, that means I've got way more dollars to support the buyout on that structure. So, um, I don't, I don't want to like say that the, the whole thing would be motivated because of increasing more tax rates as far as new, new, new, new ESOPs, but I do want to say that It's going to contribute to it. So you have this combination of, um, when we talk about what, what's been written so far, what's, what's being talked about in the ESOP community is, is this combination of, of aspects that going to lead us to concluding and agreeing with that we are really entering into, and I'm going to basically use the quote that that the article points out in the decade of decade of the ESOP. So that there is a potential tsunami of of new ESOP deals and I'm going to say in summary, that is because There are more and more um baby boomers that haven't addressed their succession plan. And that's again, 2 million businesses as we, as we pointed out. So that's the one fact. Second is that things like COVID and other things that have happened environmentally, you know, are waking people up. We had forest fires all over California, we've had, you know, huge storms, you know, fires and, and freezes in Texas. I mean, these things are, are, people are starting to think about what they're doing with their time and not only diversifying their wealth, which is the second factor. That ESOPs provide us, but it also is thinking about, I was thinking about how much time we have here and diversifying not just our wealth, but our time and how important that is as we start thinking about how many years we have left here with our families, and how do we prioritize. So that's the second point. The third point is that As we, as we think about the markets driving up the values are are increasing in 2021, I think they're there unless some major change happens economically, we could be looking at the next two years of continued increases in valuations. That's going to open the eyes of people to, to potentially say, you know what, the time is now to get out and or let's just take some chips off the table and look at a partially up. So I think those are very, very strong reasons. And then ultimately, as we start thinking about the political, the environment, the political environment, and then what that what that does is it connects us to the new tax environment. Um, I think those both are going to be more and more um akin to thinking, hey, ESOPs are a much better situation for the country. So, So with all of that, I'm going to as the ESOP advisor, quote unquote, economists predict the future, and I believe in the next 10 years, you're going to see tremendous number of ESOPs. I would say that in my mind, with all these companies that come and go selling is that we would be in the 10 to $20,000 100 to 20,000 number of ESOPs in the next 10 years. And maybe that's a huge range, but economists don't have to be completely accurate. You just have to say what's the trends towards that. So, now, I hope that one of you companies listening to, to this, to this right now become one of those in the next 10 years. Um, and we're going to continue to talk about those as we go, but I think to, to just say that ESOPs definitely have a very viable future in the economy and you should be um considering that among your other options as you, as you move forward. So, Um, I want to thank you again for the time that you spent with me today and, you know, as you start thinking about this podcast, if you like it, please share it with a friend, be looking for our future ESOP Gu live webinars, go to journey to an ESOP.com for more information there. And with all of that, as always, I wanted to say thank you again for, for listening. I look forward to our next step on this journey to an ESOP.