EP35 "An ESOP deal - case study" Discussion with Mike Zeller - ESOP attorney from Moore & Van Allen out of Charlotte, NC.

Hello, everyone. This is the ESOP guy, and we are on a journey to an ESOP. This podcast is produced to really be a resource for those that are thinking they might want to consider an employee stock ownership plan for their business. And we've been doing this for about a couple of years now, so we're in season 2. And if you have an interest in our other episodes, please go to our website at journey to an ESOP.com. So today, I'm excited to have the pleasure of interviewing ESOP attorney Mike Zeller with Moore and Van Allen from Charlotte, North Carolina. Mike is not only an expert at ESOPs, as an ESOP attorney, but he's also fluent in German, and he's also a black belt in karate. So if we make Mike mad, I mean, hey, it might get ugly. But Mike's a great guy, he's very nice, and we had a lot of, we've had a lot of fun talking about this podcast for a while. So with that, um, Mike, welcome to our podcast. Phil, thanks so much. It's great to finally be on the ESOP Guy, a journey to an ESOP podcast. I've really been looking forward to this and I'm looking forward to our discussion today. Awesome. So, um, let's just, let's just start with this because it's always interesting to find out, you know, where people come from. Um, I know you've been doing ESOPs for a while. How did you originally get into, um, the world of ESOPs? Well, my, my practice started out as an M&A lawyer and I've always looked at ESOPs. I got introduced to them back in 1990s, late 1990s, um, I've been doing this for over 20 years now, and I, I like to look at an ESOP transaction as an M&A transaction with ERISA seasoning because the underlying transaction is an M&A transaction. And the ESOP itself then adds some interesting complexities due to the impact of ERISA. And so our firm had started doing ESOP transactions back in the late 90s, and I got involved that way and really enjoyed working on those transactions in light of the, the, the culture that comes along with them. Yeah. No, I mean, they're, they're very interesting. I know like one of the things we talked about the culture of ESOPs is that you get to, you get to get the employees involved in um in the, in the process, even though they're not direct owners, they're beneficial owners. That's exactly right, and, and it allows, you know, for those sellers that want to retain their legacy and not sell to private equity or a strategic buyer to maintain that legacy and pass on the benefit of ownership of the, of the company to their employees. That's exactly right. So, so, um, Mike and I were talking about this um podcast for a little while and one of the things we thought would be interesting. It's just gonna go through a, a deal, an ESOP deal, not specifically, um, you know, with all the exact facts because we wanted to do is think about things that are interesting for people that are thinking about going through the ESOP and Um, there are unique things that happen and, and not every deal is the same for sure. And so, as you go through the process of the deal, what we're gonna do is go through the beginning of a deal and what it looks like, and all the way through the whole process to the end, um, on a, on a case study that he got involved with. I think it's a few years from now, right? Uh, a few years past from now. Yeah, it's about 3 years ago we had a professional services firm down in South Carolina. That uh gave me a call and said, hey, I understand that you're the EO guy around here. I'm competing with you. There you go, you can take you can take it um and and they said, you know, could we set up a call and and talk through it and walk through what our options are and we said, absolutely, because there are, like I said earlier, there are, you know, there's more than one option to sell your company. And you're either looking predominantly a private equity or a strategic buyer for the ESOP. And so we started talking to that company and professional service firms, you know, creates a bit of a complexity because they're generally licensed by the state. And so, Uh, the trustee is an issue when setting up the ESOP. So what we advised after going through and getting a preliminary study, a suitability study and finding out that this was a viable option for this company, they elected to move forward with the ESOP. That's great. So let's go, let's go backwards in a little bit. When, when I was looking at that, one of the things I always get into talking to people about is, um, they've heard about ESOPs and they, they obviously have, have been interested in them and so they come to you and they say, hey, tell me, tell me how we could do this. Uh, what were their, when we first start, what were their goals and objectives in terms of accomplishing the ESOP? What they want to get out of that as opposed to a private equity deal or a strategic buyer? Well, being a uh you know, a a professional services firm, they wanted to Well, one, keep their licensing status, which had they been bought by a private equity firm, they could have lost some of their government contracting rights. And so that would have obviously had an adverse consequence both to their value on a go forward basis and for the sale value, um, but the primary driver for them was they really liked their team. They had about 40 employees. Uh, they had, you know, a, a solid IIA number and their backlog was very good. And so wanting to retain the culture that they had, they had established over the years since they formed a company, uh, they thought this is really their best option. They take some money off the table. And they secure a whole bunch of loyalty from their employees by passing along the ownership to them and yet being able to retain control, not from a, you know, control perspective as a corporate governance perspective, but from an operational perspective so that they could still get the guidance that, you know, their experience. brought the company to where it is. Sure it was at that point. And that's the experience that, that created the value in the business. Well, was there a concern in their, in their minds because this, I get this question from a lot of people about what, when they're selling it compared to a private equity group, were they, were they concerned about getting more value or less value with the ESOP? Did they talk about that? Well, one of the things that we have to bring up with every ESOP client is um the general discount for lack of lack of marketability in the transaction because you're selling a security that's not public, so it's in a liquid security, and so the general discount for lack of marketability is 5%. that's what we've seen and that's, and that's what I've seen in every single deal. So it's, it's always 5%. It's like a, it's like a Twilight zone. It's always 5%, you know. You know, and so sometimes, you know, for a seller that can obviously be hard to get their arms wrapped around. Uh, and in this case, um, it became an issue late in the deal, but we can talk about that later. Yeah, yeah. Well, going into like, um, then that's kind of where I was like it, it met obviously their, their thoughts about the team, the culture, the ability to control and have some influence in the company. Um, and, and then it obviously met their, their initial thought on what the value was worth. So as you go into that deal, um, what was your next step with them? I know you were, you were kind of the quarterback in, in a sense, driving the deal. Well, we recommended to them that they interview 3 trustees, independent trustees for, for purposes of the transaction only because as a professional services firm going forward, the trustee would have to be a licensed professional. Along with the independent trustees to be interviewed for the transaction, we recommended a 2 or 3 law firms and 2 or 3 professional financial advisors that would serve as professional advisors to the ESOP trustee for the transaction. before you did that, did you, I think, I think you brought in a um uh an advisor for the company to go through feasibility, right? That's right. We, we had an advisory, ESOP advisory firm come in and do a full feasibility study, and that, that was actually very early on in the process, um, before talking with any potential trustees and their advisors. And obviously the the feasibility study went very well. That advisory firm went out uh preliminarily to seek senior financing for the transaction so that we knew it could be financed, um, to a large degree with senior debt and with the balance being, uh, financed by the sellers themselves. Right. By taking back. So they got, they got, they got that part figured out early on in the process, which I think is really good. And um and, and going through the, did you, were you part of the feasibility process with them or did you kind of let them do it and then come back? Uh, we were involved, but it was only tangentially. The, the advisory firm, you know, dealt directly with the client and provided them with their work and their analysis. We were aware of it, but we're not heavily engaged in that process. Yeah, just kind of like, hey, we know what we know what you're doing. They got the client satisfied, I guess, in that sense to move on to the next step. So, so you guys um interviewed 3 trustees and you were, you were a very part, big part of that too, right? as far as finding or sourcing the trustees? Yes, we recommended all of the trustees and participated in all of the interviews and documented that process for the board. Uh, as you know, the, the ESOP process is, is unfortunately to some degree, somewhat form over substance from a, um, you know, a DOL perspective. The DOL looks at as your process and process is so key to every transaction. So we have established a process now for all of our clients so that it's the same. For every client, we give them a roadmap. To a successful transaction implementation. Right, right. Going from selection, you know, what are the ESO trustees' qualifications? Have they worked in this space before? Who are their normal advisors and things like that? And so that is the process that we took the client through. Yeah, yeah, and I'm, I'm very familiar with that and I like that we're talking about this step because it gets, I get a lot of questions about this too and um one of the things that that we've talked about is this idea that Um, and this is where I say, you know, the, the deal itself looks like an M&A deal, but this is where I feel like it's a little different in that there are a finite number of trustees, you know, and they're not, yeah, they're not exactly, they're financial buyers that have to be regulated under the Department of Labor as opposed to a strategic buyer who has, I mean, they could come from anywhere, you know, they could come from over they could, they could speak German, you know, um. Um, so doing that, obviously, we, what I do too, I, I wanna get the client super comfortable with the trustee, and it always helps, you know, if you've got some experience, and I know like you've worked with a lot of different trustees. In this case, you had some experience with each of these trustees? Yes, with all three of them. Yeah. Yeah. And that, that always helps because then you can kind of get a sense for, hey, this is how the deal is gonna go. Um, what was the, what was it, I know with laying out the agenda, like you have, you know, their cost obviously is important, the, their experience, what were the final um for selecting the trustee on this deal? What were the final um qualifications that, that the client said, hey, these are the most important things to us. Uh, for this client, it was really understanding the nature of their professional services business and how their backlog worked. And, and The experience of prior companies similar to it just in different states and, and so that was the key driver, um, you know, fees were relatively the same across the board, so that wasn't a material consideration. It was really the experience in the space. Yeah, yeah. And they connected on a personal level too. Yeah. I think that, that, I mean, the, the financial parts are important and then the trend and the experience part, but One thing I, I look for is, will they connect well personally, cause you do kind of anticipate they're gonna be the ongoing trustee after this whole thing is said and done. Yeah, in this case, you know, that that wasn't the case because of the licensing issue, but at the end of the day when, you know, a future transaction may be necessary or is going to be undertaking and it's necessary then to bring in again a transactional trustee, having experience with one that you've already worked with and established a good rapport is extraordinarily beneficial. Yeah, yup. Um, yeah, so on a normal case, that would definitely would apply. Um, in this case, where you, so you got the trustee, the debt pretty much, you have a term sheet for the lender that you guys are gonna choose for the senior debt. Is that, is that by this time? Is that kind of true? Yeah, we had indicative term sheets so that we knew, we knew we could proceed and we had sort of the the. Our arms wrapped around what the Uh, financing would look like. Yeah, even though you don't have a negotiated deal with a sale price and not knowing exactly what the valuation is gonna pan out to be yet. Correct, you know, with the negotiated, you know, we had, we had our own internal valuation, right, and, and, you know, as you have similar experience as I do, you know, we made a proposal after making management presentations to the trustee and discussing the proposed transaction. We then made an initial proposal to sell the company to the EA. Right, you made the offer. We made the offer, um, which starts the negotiations. So one thing I was gonna ask you because I know you've got experience with very complex deals and um You know, we, we talked this about this idea of a deal that's cookie cutter, like that's real straightforward. And what I mean by that is, hey, you just have senior debt and a seller financing note versus a deal that has more of a, a, a, a heavier capital structure to it. Um, can you go into that just a little bit like in looking, I know this deal was more senior debt and seller note, right? So it's a little less complicated from that end. Um, but just explaining like the, the borrowing factor and how that really can, can make the deal a little more complicated. Yeah, absolutely. We've done, uh, you know, back in the day, you could do complete seller financing and so it's very simple. borrow, you know, company borrows money, loans it to ESOP, ESOP buys stock. Done. Um, the prevalence now is senior debt and seller notes with warrants attached to the seller notes, and we've, you know, we've seen many a transaction with senior debt, mezzanine debt. Uh, at a, you know, at 11, you know, 11% interest, and then seller financing behind that, which is unsecured and has warrants attached. And so depending on the capital stack, um, it can obviously get very complicated. You have multiple subordination agreements among the various lenders and the sellers are deeply subordinated to all of the debt in front of them. Yeah. So, so, and that's where you have a deal where there's a little more risk, you know, or perceived risk where you can't, can't get your hands around the traditional financing where you just have to pay the bank underwrites that portion of it. Um. When you get to that kind of complexity, the, the cost of the deal has to go up higher, right? I mean, and not just from a financing cost, but also from an advisory standpoint. Is that, is that true? Yes, but only from the perspective that you're negotiating various sets of loan agreements. OK. In the grand scheme of things, the mezzanine lender will come behind the senior lender and dupe out their documents, but you're paying for their legal, their legal fees on top of the senior lenders' legal fees. So the incremental transaction costs go up primarily because of professional adviser costs, right, right. Um, you know, for, for, for implementing the transaction itself, the cost of implement. Yeah, and I, I kind of, I kind of t went on a tangent there only because I, I get a lot of questions about cost and I'm actually writing another ESOP podcast about the cost of transactions because there it does vary a lot and, you know, and I see it see it varies somewhat because of complexity. Um, I see it very a little bit too just based on the type of advisors that are, that are involved, whether it be an investment banking firm or a non-investment banking firm. So, um, the, you know, your, your guys, uh, you know, ESOP attorneys, you know, all pretty much stay within some range. Um, the trustees usually stay within some range. Um, and, and then, and I kind of like, and then the evaluation firms do as well. So, you know, in, in this, this stage of the game where you're hiring the in, when you're hiring the trustee, one of the things I like to try to do in the deals is now try to just get my budget put together for the client so that they can say, OK, I, I can kind of see where this is gonna go and, and. You know, like it or not, I, I mean, most companies are gonna wanna know or have some idea what this thing is gonna cost at the end of the day. Well, absolutely, and from the trustee team's perspective, we get generally a fixed budget. Uh, the trustee fees and the financial advisory fees are always fixed, but they are not contingent upon the deal closing. Attorneys' fees are not contingent upon the deal closing either, but they're generally on an hourly basis, but we will often, to the extent feasible, establish a fee cap. Yeah, yeah, visibility on on what the budget is going to be and and on the company side as counsel, we pretty much know what it's going to cost and we can give a very tight range to the client on what the deal will cost from our perspective. Yeah. Yeah, I think that's, that's. Important. And I, I know like if anybody can do the math, if it's a percent, if they're, the advisors charging them some percentage of the deal contingent on it closing. Um, but I, I've seen those just be really, really high in some cases and, you know, for, even for lower enterprise value. So it's just curious like as you, as you've done this, you've seen a lot of those types of deals. Do you see it varying a lot when it comes to the, um, the total fees when you're looking at the different types of deals? So, yes, you know, obviously financial advisory firms look at the complexity of the deal and the size. Uh, because they're giving a fairness opinion and while they're not a fiduciary, they end up, you know, having to stand behind their work and so they, those get factored into their fees. There's a wide range depending on the size of the firm, right? So there are a fair amount of valuation advisors and quality ones in the ESOP space like you said earlier, there are fewer number of trustees and the and the pool of trustees seems to be getting smaller. Legal fees can really largely depend on Who the trustee hires, um, you know, so varying firms have higher rates than we do, for example. It, it all just depends. We've worked with other firms who are as efficient as we are and so that that process is cost effective and efficient. On the, on the advisory fee side. That too depends on the complexity and size of the deal. So I've seen uh transactions that are just a flat fee. There are seats $300,000 and that might be for a smaller size deal. Right, a larger size deal would look like any other investment banking uh firm on an M&A transaction with bans. For you know, either I thresholds and multiples of and with the multiple going down as it the purchase price goes higher. That's interesting. Yeah, so I think that, and that the, the interesting part about that question, and again, I don't wanna get stuck here, so I wanna go back to our case study, but is, you know, the, like for your experience, what's the, what is the fee, like the largest fee you've ever seen on an ESOP deal? just curious from experience. Um, So far about 3 million. wow, 3 million. Yeah, 3, yeah, I mean, and that must have been like just a huge deal. Yeah, like, yeah, um, and, in the smallest fee you've seen? 300. 300, yeah. So it's, it's definitely a, you know, a big range and it's just kind of interesting. I, you know, I kinda got, got us parked in the cost side. I just was I was curious about it and mostly because I'm writing this one podcast, but I thought it would be interesting. So getting back to our case study, um, so you're, we're in this professional service company. We're work, we've hired the trustee, we've, we've, you've made the offer, um, and then you guys had a site visit, right? And I think in this case, um, there were some issues with the site visit because of uh COVID, right? No, it's prior to COVID, so yeah, there was a site visit, um, you know, before COVID, you always had to go and kick the tires as as they like to say, and you know, during COVID that obviously shifted to Zoom or Teams visits and um it wasn't as. It, we simply couldn't do that. In this case they went down, they met with management, you know, they walked around. It always, you know, we've always done them on the basis that the company is looking to refinance their debt, and that's why people are coming in to visit. So the employees are not aware of the proposed ESOP transaction. Yeah, right, so they don't, and that's when we gave the initial, that's when we gave the initial management presentation. Yeah, that's that's a full presentation to the trustee was hired. That's, and that's what I do too. It's appropriate like now you got everybody there in the boardroom and let's let's go through the presentation. Um, and many times I'll just get the leadership team together too, you know, they have to be in the know on the deal, but these are your key people. Um, and I've had like deals where the, the company wants to get everybody involved. They wanna know, I mean, it's a little bit premature, but it happens. They want people to know that, hey, we're looking at the ESOP. And the risk is if it doesn't happen, you know, people are gonna be wondering, hey, what was going on. Um, but for the most part, I'd say most companies are gonna wanna not disclose that until the deal's over with. I don't know what you're Experience with this it's tight lipped until the deal, yeah, yeah, which is, which is probably a better idea, but you know, again, it just, it just happens. So you guys go to the, they do the site visit, they make the presentation, and they're doing due diligence. Um, you know, anything happened during like the, just to populate in the data room or anything and that was like difficult there or was it pretty seamless? It was very seamless because it was, it was handled by the advisory firm who has extensive experience in that. We had pre-populated it before the submission of a due diligence checklist because we knew what they would need, which makes, and you know, there were some subsequent inquiries, but it's generally financial data, all of the legal documents and contracts and all of those items, you know, form. Confidentiality agreements, non-solicits, all of those documents had been already uploaded, and there wasn't intellectual property rights, so there wasn't those issues. We didn't have any environmental issues because it's the services firm, they don't do anything that would contaminate the real estate, and we didn't own any real estate, so it was just leases. So that, you know, from a diligence perspective, it, it simplified the process and the data room was relatively fully populated when we gave them access to it. Yeah, that's, that's, that's nice. I mean that's really the right way to do it cause you get everything done. You don't have to wait. When you get them ready to go, you're ready to go. Um, so in that, so you, your due diligence gets, it sounds like it got, got finalized and then you get, you make your offer. Um, was there, you guys use SARS and warrants on this one or not? Uh, we did have, uh, SARS and warrants, uh, structured into the deal. Um, the company ended up not issuing the SARS, um, which was surprising, but the warrants were negotiated and it, it was about a 25% warrant package, so it was not rich, um, now in a In a private equity and a fund sponsored deal, you know, they're going to push to get 40% warrants, and what I've seen generally is they end up at around 39%. But in a lot of these, you know, private company deals without third party financing, um, you know, which Which those lenders like to refer to as hard dollars, whereas a seller finance deal is kind of soft dollars because they're still in the game, um, they'll end up with a lower package of warrants. Yeah, for that and that kind of case. Well, why I'm curious on the SARS. Why did they not um issue the SARS? Was it, I mean, they negotiated for him, right? They went through the whole negotiation on him. Yeah, they went on through the negotiations on them, uh, uh, but then ultimately determined, I mean they can still issue them, right? They'll just be, um, they still, they the plan still exists. They would have to update the numbers, but at the time they didn't yet have in place. The next true level of management to incentivize with those SARS. OK, I see. I like it. We're not gonna, we're not gonna issue this SARS. Every other transaction I've done. Sorry, in every other transaction I've done, the SARS have been issued, you know, either at closing or shortly after closing. Our experience in negotiating the SAR packages is always a battle with the trustee regarding what percentage of those SARS will be retention SARS and which what amount will be performance-based SARS. Right. Yeah, in this case, in this case, what was the percentage of the of the retention versus performance? I, I will say in all of our negotiations, we start off with 75% retention and 25% performance, uh, and, and at the end of the day, it generally gets flipped 25% retention, 75% performance, um. Yeah, and, but, but sometimes, you know, it can be the retention might be a little bit higher. The trustee and I represent both sides, so I know where both sides are coming from, you know, but at the end of the day, it also makes sense for the sellers and especially if they're holding warrants to ensure that the SARS are predominantly performance-based because it's less diluted to them, it's less diluted to the ESOP. And it really incentivizes those uh star plan participants to really grow the value of the company, which comes back to the warrant, gets that the warrant for a higher warrant price and the ESOP. Yeah, everybody, everybody wins. Yeah, yeah, it's kind of like, hey, let's make these guys work a little bit, or at least on, um, you know, accountability. So let's, let's maybe dial in on that. I'll just kind of dial in real quick. This performance part of the SAR is, is the SAR part that um you as the key person have to hit in a metric and, and typically that could be like an even a target for the year. The, the retention part of the SAR is that you just literally have to be there. You have to be retained for that period of time for you to vest, for you to vest in those pieces. Um, so it gives, it gives them something when they come back to the table to, to be targeting. Um, again, like we said, it helps the company go through that whole process. Um, OK, so those got negotiated, um, the purchase price, how did they go with the purchase price in the negotiation? And you guys made the offer and then they counter offer, you know, did you guys go up super high? Uh, I would, I would, I wouldn't call it super high, but yes, it was higher than our expectations or our client's expectations, and you know, the trustee obviously came back with a much lower number and. You know, unfortunately, that's part of the, the Aesop dance, if you will, and we profit, you know, we, we educated the client on that, that look, you know, don't take offense when they come back with a low number. Again, this is really process oriented and we need to demonstrate a real negotiation and that negotiation, you know, if you have a strategic buyer coming in, they're not gonna be, you know, come in and, and completely lowball you, um, right, and so these stuff, however, might, yeah, exactly, and and it's hard, it can be really hard for a seller, you know, to get that counter. And not have an emotional reaction. So we always try to educate our client to anticipate, look, they're going to come back with an offer that's ridiculous. Don't be upset by it. Just take it for what it is. We're going to negotiate a price that both parties can live with. It may be a little less than what you absolutely want. And remember we we're still gonna have to factor in the discount for lack of marketability and right and that that concept needs to be driven through the whole process um because in this case at the last minute when the when the flow of funds came out. Everybody seemed to have forgotten about the, the discount for lack of marketability and that that caused some serious heartburn, um, day before the closing. Yeah. Yeah, the, um, which is interesting to me, I think that's so, so in this situation, in this case, um, that seems like that would have come up. You know, in the very first step of feasibility where you describe the evaluation, um, you go through like a transaction valuation where you say, all right, this is the enterprise value. We're going to move that through the balance sheet into equity value and then we're going to get the discounts and then here's our number. So that, that feels like that, I mean, that's kind of where it gets addressed. So it's, I'm curious how that the discount for lack of marketability, and again, it's 5% and That's, that can be a chunk of change for somebody, um, in the end, um, how that kind of didn't get, I guess it just didn't get brought up early enough or it wasn't, it wasn't brought enough yeah it actually it, it was, and it was, it, it showed up in every single deck, um, and, and perhaps, you know, we should have highlighted it and had flashing lights around it, um, every time. I mean it was a $30 million deal, so. You know, it's real money. Yeah, 1.5 million so the sellers. Irrespective of the fact that they've been told about the discount for lack of marketability and it showed up in every deck, it just got glossed over and they kept remembering the $30 million dollar number and, and, and so, you know, at one point, you know. The sellers like. What? No, I need my $1.5 million. I'm not leaving that on the table. And you know, and so everybody, you know, I, the investment banker, were like, uh oh, we might not get this deal closed and um. And the sellers, they slept on it literally and called us up the next morning and said, OK, let's do this. Oh my gosh. But, but there was some breathing, um, yeah, after all that work, I, I, I, well, I remember I was, you know, in part two, I was in a different time zone. I traveled to Germany, so I was in Germany and when we were working on closing the transaction, so, um. You know, I was staying up really late for the late night calls in the US, you know, and then, um, and so it was uh. You know, a bit of a nail biter, but you know, fortunately, you know, they got it done and I think there was maybe some initial seller's remorse, you know, just because of the emotional um aspect of it, but, you know, a year later they see they, they're, they're performing, they were performing well. They'd already started paying down debt and Then those issues just simply went away, you know, and they didn't, they didn't feel bad about it. The employees could not have been more stoked about it. I bet, right? I mean, seriously, yeah, and this was a partial ESOP. It wasn't 100% ESOP, right? So they're actually this this was a 100% it was OK, it was, yeah, it was 100% ESOP and um, you know, I, I did the roll out when I got back from Europe to the employees. Um, to explain the transaction and you these, they had a bunch of smart employees and they asked some really awesome questions and there was a young guy there and He's like, I maxed out my 401k. This is an addition. This is in addition to my 401k. That's awesome. And I said, yeah, um, it is, it is addition to your 401k. And he's like, can I put more money into the EP? I'm like, No, you cannot do that. I just had a guy say that in the meeting it was the same exact thing. I'm like. Nope, I'm sorry. um, but here's something that's completely given to you here by the company, so enjoy it, um, as long as you're there. So, so that's really cool. So what other, what other aspects of the, so you got through the discount for lack of marketability, were, was there any deal structure on this one or is it pretty straight? It was a pretty straightforward deal, you know, the negotiations, what we do in our process is, you know, once the initial offer is made to the ESO trustee and they come back with a counter, we populate an Excel spreadsheet with all the terms and you know one of the things that you and I have discussed in the past, and this goes to the warrants is. Obviously warrants are diluted to the ESOP and The Department of Labor is not a fan of warrants, so in part I think because they just don't understand them and and and so what we have factored in and built into all of our transactions is event protection. So many ESOPs. May not have a long lifespan because a buyer will come along after the ESOP's been implemented and let's say you're 5 years in and you had a 20 year ESOP loan, the ESOP still owes, you know, 75% of the money. Right. Right. And so if there's no event protection, that value gets lost to the ESOP and would shift to the warrant holders, right? And so, so what we have done for the last several years. Is building event protection so that in an event of a change of control, the ESOP loan in one way or another is forgiven. So that the participants get their percentage of ownership. And the warrant holders get the value that they negotiated for as well on a percentage basis. So, so the warrant, like the warrant, if the warrant had an IR of, I don't know, 10%, just for example, um, you, you know, with event protection, what would happen is, is they would get their full 10%. Correct, yeah, instead of it going up to maybe 20%, yeah, I mean, because, so the warrant holder kind of puts himself at risk for, uh for that type of deal if they're really counting on that to go up higher over the, the full period of the debt payment. With the, with event protection. Yes, but at the same time, When we look at it, on both sides, either representing the trustee or representing the seller is When the seller And in this case, they say that they're still in management. They're the ones that are going to decide whether they sell or not. That's true, um, right? It's not like the ESOP goes out. The ESO trustee, you know, when, when we're just talking a straight ESOP with an independent ESOP trustee, they're never the ones going out and shopping the company. Right. And generally, I mean it does happen, but generally no buyer goes, oh this is an ESOP company. Let me go to the trustee and see if I can buy their stock, right, right? So management's gonna drive that decision if an offer comes along. And they're gonna entertain that offer and decide, OK, is this a good offer for us to sell the company. Right, we, we have debt on the company that reduces value, but let's say it's a really good offer. And then we take it to the trustee because we need the trustee's consent to sell the stock. So from that perspective management also has uh you know, control over whether they're actually going to sell the company or not. So it's not really so much that they take risk, but they're also by implementing uh event protection, they mitigate their litigation risk. From the DOL or a participant. Oh, I see. Yeah, because if they get some big warrant and the Department of Labor looks at that or participant looks at that and says, hey, they, they took out more than they should, even though if they follow the, the, the letter of the law of the warrant document, they're still within their rights to collect the warrant payment at the end, yeah it's not, but it's not the DOL won't try to sue, of course not, right, yeah. Yeah, um. And that's not to, you know, to dissuade anybody from, uh, doing any self transaction. We love doing self transaction, you know, I just, just, just as we were getting onto this. Podcast call. I got a call from one of my trustee clients saying, hey, we're, we've been engaged and we wanna hire you, um, for a new e-supple implementation. So, um, it's just understanding the playing field and, and being aware of that there are risks. But if you use best practices, you mitigate those risks to a great degree. Yeah, yeah, yeah, I think the, um, let me, let me go back to the dilutive statement too and it just so everybody understands what warrants basically dilute the value. Of the share price for the ESOP participants because they're an obligation of the company to pay out X amount depending on the value of that warrant at the time the, the seller debt matures. So basically, the, the more the warrant, the more warrants there are, the less because that comes right out of the company, then it takes down the value a little bit. So the, so the protection the trustee wants is To not dilute as much value. And that's why we negotiate the warrant in the first place is to, is to make sure we're not taking more than we should to augment the seller, the senior, the seller debt risk, which is why you're getting paid to warrant in the first place. So, hopefully, that makes sense to everybody. I, I just wanna make sure we, we define some terms. Cause you know, we, we just throw things around, Mike, like, hey, dilutive, and then people are like, oh what, what does that mean? Um, anything else you would add to that one. I think that, yeah, I, I think the, the easiest way to describe that perhaps is, you know, the EA buys 100%. And let's, let's just say the, the sellers get 20% warrants, right? So now the ESOPs diluted to 80%. And when you, when you put in a SAR plan, let's say that's 10%, right, that's going to do dilute both the the ESOP and the warrants pro rata, and that's fine because the SAR plan is comp and if it's based on predominantly on performance, it's a creative in value, but as you said, so and what we talked about earlier with respect to event protection. The the ESO trustee will negotiate the warrant package based on an IRR, including the seller's notes, what what interest rate they're getting, and the warrants right are making up for the risk that they're taking by providing that debt. And so the ESO trustee wants to negotiate a band and they try to negotiate to an IRR between around 12%, um, but it varies. And it will vary in large part based on the risk factors, but I agree with you completely, right, that that the warrants and the SARS are diluted, but as long as the stars are creative in value, it's a non-issue. We have the event protection to protect against an early change of control transaction which would attribute more value to the warrants and take that away from the ESOP. And I think, you know, to go back through like as we, as we kind of close the deal that we're talking about down, um, you know, this is the point of the podcast is to help guys like say, oh, what is the discount for lack of marketability? And now you know and what I, I think you're, you're on the same page with me, Mike. I mean, what I always want to do is I don't want to have any real drama during a closing cause nobody, nobody likes that. Um, you want to get all that stuff on the table at the very beginning and all through the process. So, um, that, so going through the, some of those ideas behind what the, what the terminology is and how it works, and the pros and cons helps the, you know, a selling shareholder go, go into this process and be, you know, at least asking the right questions of their advisors, you know, so that they're educated. Exactly right, though. Yeah. So, um, so, so it sounds like at the end of the day it was a successful closing and everybody high fived and, um, you are, are you still working with this company or are they um You know what I am, yeah, cool. That's awesome. That's always, that's always kind of a, you know, a gratifying thing in terms of building that relationship and then staying in tune with them as they go on, you know, so excellent. Any, anything you would want to add to that whole story, Mike, or I think we kind of nailed a lot of stuff. I think we got it all covered, Phil. Cool. Well, um, with that, I just say thank you for your time today, Mike. I know you're busy and um I think it was really helpful. I think people when they listen to this will be like, oh, OK. You know, you'll, it may not, you may not get everything, but you'll, it'll start to kind of sink in. I think that was the goal of this, of this episode. So again, thanks, Mike, for your time. Phil, really appreciate you having me on the podcast. Awesome. So for everybody else, thank you so much and we will see you on, on our next step on this journey.