ESOP Transaction Partners Explained: A Comprehensive Guide

in every ESOP there's a team of professionals engaged in order to undertake the transaction I'd like to take you through who everyone is and what their roles are so that you can understand when we speak about an ESOP their relative positions in the transaction and what they do so let's start with who's on the cell side and next we'll do who's on the buy side the sell side is first our clients the selling shareholders we know who they are and they have key employees who are the next line of management who may someday be the Senior Management we want to make sure that we come up with benefits for them that are enticing for them to stay and lead the organization the next group is company counsel there's going to be an attorney with tremendously deep expertise in esops probably has done hundreds of them that if your own Law Firm doesn't have someone like that we're going to bring them in because we need true experts at every chair around this transaction after them on on the sell side is your accounting firm your accounting firm is going to validate everything we say in this transaction to the buy side and they're very important part the next one is the first party who you don't know who they are probably and that's called the third party administrator or TPA the third party administrator helps craft a retirement plan that works for your Workforce they do a lot of analysis they keep the records on it and they make sure that we build a retirement plan that all of the rules will be followed for your team and finally we have your Wealth Advisors and EST estate planning Council we are looking at you in a holistic way meaning it's great that you've created all this wealth out of your company that we were part of it but we want to make sure that you've thought about your estate planning which is really planning around the death tax to put it in simple terms and also what to do with this family wealth that's being generated so it ends up running the way you want to so we embrace your state planning Council and wealth adviser our transaction cuz we're thinking beyond the transactions it's not just about with us about a deal it's about where do my clients go where are they going to be successful for the future because we really care about them and their families the other side's the buy side so who's buying my business it starts off with someone called the ESOP trustee a trustee is a fiduciary meaning they have a duty of loyalty and good faith to someone else their duty of loyalty and good faith is to the employees who are really not in the room for this transaction to be negotiated so we first want to get someone who does that they're typically lawyers and CPAs who fell in love with employee ownership and this is what they do for living this is their job they do it for many many companies they are going to have a couple of professional advisors the first one is they're going to hire a valuation firm that valuation firm's job is to really understand my clients our clients value because their job is to know the fair market value of the company cuz that's what what a trustee is allowed to pay and their ultimate role will be to sign what's called a fairness opinion to the trustee saying this transactions Fair financially to the buying employees they are going to be the economic voice of the trustee throughout this transaction they'll conduct due diligence and we will spend lots and lots of time talking to them during a typical transaction um the truste also has to hire a lawyer trustees counsel trustees counsel is someone who also has done hundreds of esops and we've seen in many transactions before and they will represent capably the fiduciary in making sure it's a fair value to the employees finally you have the need for Bank debt so we have lenders our firm is I believe the highest and best firm in the country in terms of sourcing capital for esops because of our tremendous Commercial Banking experience and we know the lenders we know what they're willing to do we talk to them and we run what's called a bank process whereby the banks will compete to win your client's work and that is really important in terms of maximizing the line of credit you'll need for liquidity in the future cash and closing and a flexible financing that doesn't overly pressure the company and then finally lenders counsel so they're going to have a lawyer we need lawyers who understand esops we've never had a client sign a personal guarantee in an ESOP we've done we won't tomorrow or the next day either cuz the banks we deal with in their Council understand as a seller you're not going to guarantee the debt so in the middle of all this is our firm so what do we do so our first and highest job is to identify your goals because goal ascertainment and achievement is our job so first we ascertain your goals we spend real time with you and then we build up a Spoke plan to get there we also advocate for Value we know that when a client sells typically it's the most important financial transaction of their lives and we want to make sure they're treated fairly we think that's our job because it is we manage the deal process there's eight or nine sets of professionals project management and making sure everyone's doing what they're supposed to do when they're supposed to do it is a big undertaking you should think of us as the quarterback in the transaction and everyone else are position players so we distribute the ball to the players when they need to perform they do their jobs ball comes back to us we move it on to the next party there's a significant amount of project management to keep this many really smart professionals working as a team we're going to structure this transaction to achieve your goals both from a financial and tax perspective we're going to lead the negotiation of value we are your financial voice in this transaction with the trustee and their valuation firm so we're are the ones who are really negotiating the transaction we also are sourcing and negotiating the bank financing of this transaction on your behalf so our job is to put this team together and then to achieve the goals that our clients articulate us at the very beginning of our relationship and that's really the core of what we're supposed to do here and this is all the people that would be part of that transaction to get there