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Trends in Financing ESOP Transactions

April 4, 2019

A growing number of business owners are discovering the financial and performance benefits of employee stock ownership plans (ESOPs). As of 2015, the most recent year for which data is available from the National Center for Employee Ownership, there were nearly 6,700 ESOPs in the United States, holding total assets of nearly $1.3 trillion.

With an average of nearly 230 new ESOPs formed each year, ESOPs are a proven, effective tool for recruiting and retaining talent and developing corporate succession plans for family-owned and closely-held businesses in the United States. Industry experts anticipate ESOP formations will increase over the next 10 to 15 years as “baby boomer” business owners transfer ownership and management of their companies to employees.

As a result of the growing trend of ESOP formation, many banking and financial institutions now have finance teams in place to manage specialized and complex financing of ESOP transactions. Banks are eager to provide financing for ESOPs due to ample lending reserves. Many ESOP-owned companies are also exempt from federal income taxes which in turn increases the cash available to repay bank loans.

Walter Haverfield partner and ESOP practice leader Tim Jochim will lead a panel session discussing the latest trends in ESOP financing at the 33rd Annual Ohio Employee Ownership Conference on April 25th in Akron, Ohio. Jochim will be joined by panelists from Fifth Third Bank and accounting firm, Mill, Potoczak and Co. The panel will also discuss multiple bank financing instruments with different levels of seniority, security and return.