ESOP

The situation

A consistently profitable and growing biotechnical services firm was seeking advice. Although comfortable with the current success of the company, the middle-aged owner worried about retaining a uniquely qualified staff over the long term. He was also concerned with the long term viability of the company, ownership succession and value upon his retirement. Could the company continue after he left it?

How our professionals helped

First, our professionals reviewed the value drivers of the firm. Its collection of human intellectual capital was a major asset and key to the company’s sustained growth. Our professionals recognized that without its staff the company would not be worth much. As such, our professionals evaluated and presented to the owner a series of comprehensive long-term compensation models, including cash, retirement plans, various stock option, phantom stock and Employee Stock Ownership Plan (ESOP) alternatives.

The owner was especially attracted to an ESOP because it gave the company a tax-advantage basis while enhancing its:

• Ability to deliver true ownership to all employees (starting immediately);
• Long-term vesting to keep staff in place and motivated;
• Ability to contribute/sell company stock over time at increasing fair price;
• Ability to retain control of the company.

With the owner’s consensus, our professionals modeled a detailed ESOP financial plan. Our professionals assembled a professional team, including an ERISA lawyer, personal financial advisor, accountant and pension plan administrator to implement the ESOP. Then, our professionals performed the initial ERISA required valuation. Our professionals also prepared all the employee information and presented the plan to the staff.

Our professionals then performed ongoing annual valuations and consultations with the owner regarding the ongoing plan.

The result

The staff of this biotechnical company was highly enthusiastic about owning a piece of the company. Moreover, they remain highly motivated with the knowledge that—over time—they will own the entire company. In the meantime, the owner is assured of a tax-advantaged sale at fair prices over time to his colleagues … giving him peace of mind as well as preserved wealth.