If you purely look at the numbers, you will make much more money by selling to an ESOP!
“What if the Private Equity firm pays 50% more money than the ESOP?”
After taxes, the owner gets more money by selling to an ESOP.
“How is it possible to earn more money from selling to an ESOP?”
Congress has bestowed significant and tremendous tax incentives and subsidies to ESOPs and the selling owners. Even with a 50% premium, the owner will STILL make more money by selling to an ESOP. Here’s why:
- The money received by the owner when selling to the ESOP initially is tax deferred and can be tax free if structured correctly.
- The owner can receive warrants to buy back a percentage of the firm in the future. This means the future gets a significant “bite at the apple” years down the road.
- Once sold to an ESOP, the company will run tax free. Zero Federal tax. Zero State tax.
If this idea is of interest to you, make sure to contact Darren Gleeman at dgleeman@mboventures.com, and we can have a conversation. Our team has structured over 300 ESOPs – we know what we are doing.