Avoiding M&A Post-Closing Pitfalls: A Buyer's Guide To ESOP Wind-Downs

Buyers (including private equity firms and their investors) that acquire the stock of a company wholly or partially owned by an employee stock ownership plan (ESOP) face a unique set of post-closing challenges. After closing, the target company (now under the buyer's ownership) will continue to be responsible for the ESOP until it is fully wound-up and liquidated, which is a process that continues well beyond the transaction closing date and the ESOP's formal plan termination date. To ensure a smooth transition and avoid unexpected liabilities, buyers should understand the key post-closing ESOP expenses that will arise when terminating an ESOP, and other legal and practical considerations when winding-down an ESOP and take deliberate steps during diligence and transaction structuring to prepare for these issues.