Establishing Preliminary Objectives

SELECTING AND RANKING PRIMARY OBJECTIVES IN ORDER OF PRIORITY

This is a typical set of primary objectives that were established by an ESOP candidate company during its initial assessment.

 

Existing Owners

1. Divest on the most favorable terms possible.
2. Diversify present investment holdings.
3. Maximize net proceeds of sale through ESOP tax deferral.
4. Provide for an effective transition of ownership.
5. Perpetuate the enterprise.
6. Maintain control while active in the company.

Investor(s)

1. Purchase equity under the most favorable terms.
2. Obtain controlling interest in the company.
3. Create a structure that relates performance to value.
4. Provide for an eventual exit under the most favorable tax terms.

Company

1. Service acquisition debt on total pretax basis.
2. Maximize "free cash flow".
3. Retain and motivate key executives.
4. Provide a meaningful benefit to employees.
5. Increase productivity of employees.
6. Expand future capital base on favorable terms.

ESOP

1. Participate as an equity investor in the acquisition.
2. Obtain an equity interest at a fair price.
3. Obtain a fair position relative to all other equity investors.

Employees

1. Maximize employee participation in decision making at the work place level.
2. Improve quality of employment by permitting employees to be owners.
3. Build individual equity value on a tax-free basis during the build-up period and cash out on a tax-deferred basis.

09001840

Steps in the ESOP LBO Process*

  1. Assemble ESOP deal team

  2. Conduct Valuations and Due Diligence

    a.
    ESOP
    b. Company
    c. Investors

  3. Establish objectives of parties to the transaction, structure, and equity allocation

  4. Execute Financing

  5. Implement ESOP and deal structure

  6. Initiate Productivity Enhancement Programs

  7. Balance other factors affecting value

  8. Increase equity returns

  9. Monitor the ESOP LBO Company

  10. Arrange exit for the investors

* A number of these steps are generally performed
concurrently.

 

| LINKS |

Copyright © Benefit Capital Companies, all rights reserved.