ESOP Company Transactions: An Alternative Exit Strategy For Founders

As mergers and acquisitions activity increases in 2024, middle-market dealmakers evaluating an exit and corporate founders planning for CEO succession are considering a variety of factors, including employee motivation, retention, incentives, interest rates, post-pandemic valuations, and tax laws. In a sale of the founder's equity to an employee stock ownership plan (ESOP), the interests of corporate employees and founders should align. The founder of a private corporation approaching retirement age and seeking to retain management control may consider selling equity in intervals while establishing a tax-efficient ESOP, concurrently strengthening employee engagement.

Although Congress enacted employee ownership tax incentives in 1974, employee ownership models are receiving increased attention as private equity advocates and academics have publicly championed social and economic benefits of employee ownership. This GT Advisory evaluates four reasons why an ESOP may