Has anyone ever looked at ease of acquiring a company which has an ESOP?

searcher profile

July 15, 2019

by a searcher from Harvard University - Harvard Business School in Atlanta, GA, USA

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Reply by a professional
from University of Miami in Houston, TX, USA
Looking at a small deal now that has an ESOP. As you suspect, an ESOP materially complicates the deal with additional admin fees and voting rights. Search fund lenders are also weary of ESOPs as they rarely come across them in the lower-middle market and, often, do not understand them. I understand that some smaller ESOP's can be bought out by the existing owner pre-acquisition, but I know this can be situation-specific and must comply with ERISA.
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Reply by a lender
from Colby College in San Francisco, CA, USA
From a lender's perspective, an ESOP structure involves some added risk with no institutional investors behind the company and depending on the structure, owners are often times less incentivized to stay engaged in the business. Our firm is very active in the search fund space, but we have funded a few ESOP deals with success. It's not a non-starter, but the terms would be more conservative.
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