ESOP Funding
Construction Company – 100% ESOP, with C-Suite staying on to manage the company
Goals of Company Owner:
- Robert, a 65-year-old owner of a construction company in Arkansas, wants to retire and totally cash out. Due to the fluctuations in the economy, and the types of contracts he deals with, he has a hard time selling his firm for the price he wants.
- The managers want to buy the firm, but they don’t have the capital.
Prior Action:
- Robert pursued an opportunity with a mid-size private equity firm.
- After a signed LOI, the deal price was renegotiated
- The deal never happened
Solution:
- Robert sells 100% of the firm to an ESOP trust owned by his employees (See Video – What is an ESOP)
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Robert defers tax on the sale of the company (tax deferred indefinitely)
- With tax breaks, Robert receives more money than he would have with the original private equity deal
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The ESOP trust borrows a portion of the money from a bank and pays Robert
- Neither Robert nor the employees have to guarantee this loan
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Robert takes back seller notes for the remainder of the money (To understand more about warrants, go to the Blog)
- Robert will receive interest plus he will receive warrants to buy back a portion of the company
- These warrants have a value, and will be sold to the Management Team
- The company becomes a tax-free business
- The C-Suite team manages the company, while the ESOP Trust has control of the Board of Directors
- Employees are more personally invested in the company as beneficiaries of the ESOP trust, gain a huge retirement benefit and therefore work harder (as demonstrated in these Harvard studies)
- The management team of the company receives the ability, through the warrants, to buy back 25% of the company at a future date at a very good price.
- Debt can be paid back twice as fast as non-ESOP companies because the company is not paying taxes
Depreciation recapture is a problem when selling a construction firm. ESOP solves that issue.
Contact Us
We’re easy to reach and always happy to help
We invite you to call us with any questions you have or email us by filling out the form below. No question is too big or too small – whether you have a question about MBO Ventures or a question about ESOPs.
dgleeman@mboventures.com
Partner Phone: (646) 734-2035
40 Fulton Street, 17th floor
New York, NY 10038