Grossman Yanak & Ford LLP has extensive experience in the development and implementation of ESOP-based business strategies. Click here to read more about our expertise. We provide the following ESOP Services:
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Transaction Consulting & Design
Inherent understanding of the many nuances of adopting a business strategy that incorporates the use of an ESOP is critical, both at inception of the plan and throughout the life of that strategy.
The GYF professionals serve a variety of consultative roles to assist our clients. In these roles, we can help to clarify the finer points of utilizing an ESOP and offer suggestions about how to best evaluate and implement such a strategy. Our experience and understanding allows us to offer any number of ESOP advisory services required by either side of the transaction to ensure a successful adoption and implementation of your ESOP strategy.
We have provided professional ESOP consultation services on behalf of the selling business owners and their business advisors, attorneys and accountants, helping those individuals better understand the mechanics of the strategy, the tax benefits associated with adoption of such a strategy, seller(s) risk minimization assessment and mitigation and, most importantly, determining and clarifying the economic benefits to the seller(s).
GYF has also worked on behalf of the Trustee(s) of the proposed ESOP trust in early stage assessments of the viability of an ESOP, assisting with matters such as review and assessment of feasibility study outcomes and the underlying assumptions produced by other parties, transaction structure assessment, transaction valuation review and critique, if prepared by another party, compliance with GreatBanc Trust “fiduciary process requirements” and various other financial and economic matters related to the proposed use of an ESOP to accomplish a business objective.
Feasibility Assessment & Studies
As the name suggests, a “feasibility study” provides the selling shareholders and management a means to assess the viability of utilizing an ESOP to accomplish their strategic planning objectives. Feasibility studies can be prepared by sponsor company financial teams, sponsor-company’s external accountants, or third-party ESOP advisors.
Feasibility assessments captured in such studies set forth the financial and economic impacts of utilizing an ESOP. If the ESOP is leveraged, i.e., borrowing funds to facilitate the ESOP’s purchase of shares from the seller(s), the feasibility study incorporates the effects of the borrowing, as well as the repayment of that debt. Finally, any quality feasibility study will include consideration of the effects of honoring the repurchase obligation associated with the “put” provisions required of every ESOP under DOL and IRS rules.
Services that we provide in this area include:
- Preparation of an independent feasibility study setting forth all necessary assumptions, calculations and points of consideration to use in making the decision to move forward
- We will develop assumptions required to facilitate consideration of all elements of the company both pre- and post-adoption of the ESOP. These assumptions will be developed, based on our experience with ESOP matters, and in conjunction with management discussions, financial and economic analysis of historical financial information and review of post-transaction expectations set forth by management.
- We will prepare a sponsor-company-specific financial model that will allow for inclusion of all important items to consider with respect to possibly adopting an ESOP. We also provide macro formulas to allow for the assessment of alternative “what-if” scenarios and assumptions in the event that the transaction does not come together as initially planned.
- In the process of completing the feasibility study, we are able to prepare both a calculation of value and/or a full valuation in accordance with professional standards.
- Review of feasibility studies prepared by a sponsor company’s financial team or external accountants
- We can review critical assumptions relating to forecasted or projected information utilized in the study (i.e.: expected future cash flows, capital expenditure outlays, debt borrowing costs, repurchase obligation liability satisfaction, and expected employee/participant qualified wages.)
- We can analyze transaction valuation models prepared by management or other advisors, setting forth the tentative transaction value for the purpose of modeling the feasibility of the strategy.
- We can perform mechanical testing of the interworkings of the feasibility study to ensure that the assumptions identified and analyzed are properly incorporated into the feasibility study, and the resultant outcomes are accurate and appropriate.
- Consultation with company ownership, finance and accounting personnel and/or third-party independent accounting firms to advise on those considerations required to complete a proper feasibility study.
Valuations are often perceived by the Department of Labor and the Internal Revenue Service as the most problematic area of ESOP compliance. The focus on qualified retirement plan oversight is always on the protection of the employee/participant, so it stands to reason that the valuation plays an extremely important role in planning for the adoption of an ESOP.
To comply with protections afforded to plan participants by ERISA rules, an ESOP valuation must be performed on annual or quarterly basis.
In many ways, the business valuation process for ESOPs is subject to the same governing professional standards, generally accepted business valuation procedures/protocols, and other foundational financial and economic theory as valuations prepared for other purposes. However, there are a number of sophisticated and unique differences specific to ESOP valuations that must be considered in the course of such assignments. As such, ESOP valuations require great care and acumen to ensure that the conclusions of value developed in each engagement can stand up to the rigor of a challenge by the DOL or IRS. Our team has the expertise and experience required to exceed Trustee(s) fiduciary requirements.
Most often, GYF is engaged by the ESOP’s trustee(s). For transactions, the trustees are usually independent. Our work on ongoing periodic valuations involves both sponsor company trustee committees and independent trustees. We are able to work effectively with both independent and institutional trustees. The services we regularly provide to ESOP trustee(s) include:
- Determination of value for the initial ESOP transaction
- Preparation of the transaction Fairness Opinion
- Completion of the annual and periodic business valuations
Because an ESOP is a qualified retirement plan, which is deemed to be created for the benefit of the plan participants by the Department of Labor, that agency’s primary objective is to protect those plan participants. To assure compliance with DOL regulations, astute ESOP Trustees regularly review all management initiatives to ensure that the integrity of the plan is being maintained, and that those initiatives are not detrimental to the employees/plan participants.
In the course of these trustee reviews, the GYF team is often called upon to evaluate proposed operational and financial transactions contemplated by company management to determine the potential economic effects on the value of the Plan’s assets and the employees/plan participants.
Our professionals can provide the following ESOP consulting services:
- Assisting ESOP trustee(s) with various ESOP-related matters, including the assessment of whether a potential management initiative will be beneficial or detrimental to the ESOP employees/participants
- Addressing DOL and IRS challenges to valuations prepared by other firms, or in conjunction with various mechanical and technical aspects of the plan, itself, that may not be in conformity with the guiding agencies’ rules and statutory/regulatory requirements
Experience & Expertise
GYF brings three decades of experience in developing and facilitating sophisticated ESOP strategies and opportunities for companies and their ownership groups, as well as independent trustees, acting on behalf of employees. Our team of ESOP specialists include licensed certified public accountants that are accredited in business valuation and who carry valuation credentials from the National Association of Certified Valuators and Analysts (NACVA) and the American Society of Appraisers (ASA), among others. Our ESOP team leaders are frequent speakers, both regionally and nationally, on matters of importance to trustees, ESOPs and their sponsor companies. They have published numerous technical articles on ESOPs and ESOP-related matters.