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Last Updated: September 2025
Selling your company to an Employee Stock Ownership Plan (ESOP) is more than a transaction; it’s a strategic transition. The process requires balancing shareholder goals, company performance, and employee benefits. At PCE, we guide business owners through every step, from early discovery to post-closing execution, ensuring each decision aligns with long-term success. Our disciplined, three-phase approach delivers clarity, reduces risk, and creates value for shareholders, employees, and the company alike.
Key Takeaways
- Structured for Success: A well-designed ESOP process, Discovery, Feasibility, and Implementation, ensures clarity, reduces risk, and aligns with long-term goals.
- Customized for Owners: ESOPs offer flexibility for shareholders seeking liquidity, tax advantages, and a lasting company legacy.
- Empowers Employees: By transitioning ownership to employees, ESOPs strengthen engagement, retention, and company culture while preserving independence.
Why the ESOP Process Matters
An ESOP is not a one-size-fits-all transaction. Unlike a third-party sale or private equity deal, an ESOP transaction can be customized to ensure alignment between the company, its shareholders, and its employees. Owners who pursue ESOPs are often motivated by more than just liquidity; they also want to:
- Secure favorable tax benefits
- Reward employees with ownership opportunities
- Sell only a portion of the company
- Preserve the company’s independence and legacy
An efficient and well-structured process is critical. Inefficiencies or missteps can increase costs, delay closing, or not achieve shareholder goals. PCE’s three-phase framework—Discovery, Feasibility, and Implementation—ensures that every decision is deliberate, defensible, and aligned with long-term success.
Phase 1: Discovery (Pre-Engagement)
The Discovery phase takes place before a formal engagement. It is designed to give shareholders a clear, realistic picture of what an ESOP would mean for them and their company and whether it aligns with their goals.
The key question in this phase: Could an ESOP be right for my goals?
What Happens During Discovery
- Set Expectations: Establish high-level analysis on value, liquidity, transaction timing, and estimated transaction professionals and fees.
- ESOP Education: Explain how ESOPs work, including the leveraged ESOP structure, allocation of benefits to employees, and corporate governance as an ESOP-owned company.
- Tax Benefits: Outline the major tax advantages available to both sellers and the company.
To ensure everyone is on the same page, we provide a high-level range of company value and projected proceeds to show what owners could expect to receive at closing.
Why This Phase Is Critical
There are misconceptions about ESOPs. This phase ensures owners understand both the opportunities and the trade-offs before investing time and resources into a full feasibility study.
Outcome: By the end of Discovery, owners have a well-grounded understanding of how an ESOP works, the potential financial and tax impact, and whether it could be an appropriate path forward.
Phase 2: Feasibility
Once shareholders decide an ESOP is a path to pursue, the Feasibility phase begins. This is a deeper, more data-driven analysis designed to confirm whether the transaction makes sense for all parties, with significant diligence in providing options.
The key question in this phase is: “What is the best ESOP structure for my company?”
What Happens During Feasibility
- Detailed Valuation: We will conduct significant financial diligence and will apply multiple valuation methods (e.g., Discounted Cash Flow, Comparable Company Analysis, Comparable Transactions).
- Corporate Structure Review: Analysis of whether the company should be an S-corporation or C-corporation for desired and optimal tax outcomes, coupled with various scenarios of how much equity the shareholder(s) want to sell.
- Financing Readiness: Exploration of how banks or other lenders will view the transaction and whether capital is available.
- Transaction Scenarios: Modeling different ownership percentages and benefit levels to identify the best fit.
- Proceeds: Gross and net proceeds to the shareholder(s), including all aspects of compensation and future proceed windfalls.
The feasibility process is typically iterative, where we provide initial findings and solicit company feedback. We adjust the analysis to provide optimal outcomes.
Outcome: Shareholders receive a tailored feasibility study that compares multiple scenarios and provides a roadmap for structuring the transaction.
Phase 3: Implementation
By the time you reach Implementation, all major questions have been addressed and the optimal ESOP structure has been designed. Now it is time to put that structure into action by hiring the trustee and team, negotiating terms, securing financing, and finalizing the transaction.
Building the Advisory Team
- Company-side advisors: Corporate attorney, accountant, and wealth advisor.
- Trustee team: ESOP trustee (selected by the company), attorney, and valuation expert (who are selected by the trustee).
- Financing partners: Banks or other lenders providing debt capital.
Key Steps in Implementation
- Trustee Selection: Interviewing potential trustees and choosing the best fit to act as buyer on behalf of employees.
- Management Presentation: A half-day session where company leadership presents its history, operations, and financials to the trustee. A true chance to tell everyone how prolific your business is.
- Negotiation: Multiple rounds of negotiations with the trustee on all terms and conditions of the transaction.
- Financing: PCE negotiates with multiple banks to secure the best financing terms, ensuring owners receive appropriate liquidity.
- Documentation: Drafting of stock purchase agreements, ESOP plan documents, and financing agreements.
- Closing: Finalization of all legal, financial, and ESOP documents.
- Communication: Establish a plan for communication to employees post-transaction in conjunction with a third-party administrator.
ESOP Process Timeline at a Glance
From the start of Feasibility to closing, most ESOP transactions take four to six months.
- Discovery: 2–4 weeks
- Feasibility: 6–8 weeks
- Implementation: 12–16 weeks
- Total: ~5 months
FAQs About the ESOP Transaction Process
Q1. How do I know if my company is a good candidate for an ESOP?
A company is usually a strong ESOP candidate if it has steady cash flow, reliable management, and at least 20 employees. These factors make financing feasible and ensure employees benefit from ownership. We will help you determine fitness during the Discovery phase.
Q2. How much of my company can I sell in an ESOP?
The choice is yours. Some owners prefer a partial sale to gain liquidity while retaining control, while others sell 100% to maximize tax and succession benefits. The right percentage depends on shareholder goals, financing availability, and company strategy. There are certain advantages to selling a larger interest; for instance, a minimum sale of 30% is needed to qualify for Section 1042 capital gains tax deferral.
Q3. How is ESOP financing typically structured?
Most ESOPs use a mix of bank financing and seller notes. Banks provide a portion of the upfront capital, while sellers often finance part of the deal themselves through notes that carry a premium interest rate. In select cases, mezzanine or other non-traditional lenders may participate, but bank and seller financing remain the standard.
Q4. How long will an ESOP transaction take?
ESOP transactions take about four to six months from feasibility through closing. Discovery usually lasts 2–4 weeks, feasibility takes 6–8 weeks, and implementation requires 12–16 weeks. Complexity, financing negotiations, and regulatory review can influence timing, but a disciplined process helps keep the transaction on track.
Final Thoughts
An ESOP can be a powerful tool for business owners who want liquidity while rewarding employees and preserving company culture and independence. But the benefits only materialize when the process is executed with precision.
PCE’s three-phase process, Discovery, Feasibility, and Implementation, gives business owners confidence that their transaction will meet financial, tax, and legacy objectives.
Contact PCE today to learn if an ESOP is the right succession strategy for your business.
Eric Zaleski
Eric Zaleski is a Managing Director at PCE and a key member of the firm’s ESOP Advisory Group. Based in the Chicago area, he brings 25 years of experience helping middle-market business owners implement and finance complex ESOP transactions.
Eric Zaleski
Investment Banking | ESOP
ezaleski@pcecompanies.com
Chicago Office
407-621-2100 (main)
847-239-2466 (direct)
407-621-2199 (fax)
During the discovery phase, a high-level valuation and feasibility study are performed. Once these components are thoroughly analyzed by comparing a variety of structures and options, a decision is made as to whether to pursue an ESOP. If the shareholder(s) decides to move forward, the implementation phase begins, which includes the design of the ESOP, financing decisions, documentation, negotiation and closing.
We discuss each stage of the two phases in detail.
[Insert arrow image]
Valuation
During the valuation stage, a brief list of company financial information is used to analyze the business and create a high-level assessment of the company's value. PCE's process includes three different valuation methods, which are combined into a detailed model.
Discounted Cash Flow Analysis (DCF)
The DCF method uses the company's projected financials to create a detailed, present value of the projected cash flows. The DCF analysis incorporates growth, reinvestment requirements, working capital needs, and any one-time or discretionary expenses to calculate a normalized earnings before interest taxes depreciation and amortization – or EBITDA. This estimate is the inherent value of the business and is likely the most applicable to the overall valuation, so careful consideration on the company's projections should be adhered to.
Comparable Public Company Analysis
As the name implies, the comparable public company analysis is based on public market trading multiples. Market research is conducted to find and compare companies that are similar or related to your industry, such as your competitors. The public trading multiples used in the valuation are subsequently adjusted for differences such as cost and availability of capital, size, and growth rates.
Comparable Transactions
The comparable transaction method uses multiple databases to find closed transactions within your industry to identify the value based on multiples paid. Transactions found may or may not have information such as the price paid, multiples, and other information that is made public. Because only reported information is used in your company's valuation, this approach may not be applicable if enough relevant information is not available.
Once all three valuations methods are conducted, the methods are weighted to determine the range of value. These are typically weighted evenly; however, they vary for each situation. The range of value provides the shareholders a floor and a cap to which their investment banker believes the price of a sale can take place. Upon receiving the range, the shareholders will discuss with their investment banker if any material changes should be made
Feasibility Study
The next step in the process is to engage an investment banker as your financial advisor to complete detailed due diligence and produce a feasibility study that is all-encompassing of a transaction. The objective of the feasibility study is to help shareholders, board members, and management understand if an ESOP will achieve the required objectives. The report consists of a more in-depth valuation of the company after fully vetting all financial, company, operational, and legal diligence. Ultimately, the result of the feasibility study and valuation includes an analysis and presentation of multiple scenarios and options that are tailored to the shareholder's objectives.
In a sale to the ESOP, the company needs to be a corporation and, therefore, may need to address their structure. The company legal structure will be evaluated in the feasibility study to optimize the specific tax advantages for either the company, shareholder, or potentially both.
A key component of the feasibility study is the view of liquidity to the shareholders. It addresses how much can be provided, the market for terms and structure, and the company's ability to repay the debt. Presenting the gross and net proceeds to the shareholders in a transaction is important when they are considering the overall structure of the sale to the ESOP.
Once the feasibility study is complete, the findings and options are presented to the shareholders. A thorough discussion is done to determine what structure is best for everyone involved. The feasibility study can be modified based on the results initially presented to allow the shareholders to consider different structures or the combination of a few of the options. Once narrowed down to one structure, the shareholders must decide whether to pursue the ESOP transaction or to put it on hold for a future date.
Design
Now that you've decided to move forward with the ESOP transaction, the process to develop the structure, terms, and conditions of the overall transaction begins.
First, you must assemble the rest of your team if not already done. The company team includes the company attorney, accountant, and personal wealth advisor. Consequently, the buyer, or ESOP Trustee, will have their own team, which includes an attorney and valuation firm. (One unique characteristic about ESOPs is that you get to choose the trustee, and you get to choose your own buyer!) Your team will work with the shareholders and board members to interview and hire the trustee of the ESOP. Once the teams are in place, a comprehensive presentation outlining the company, its history, financial performance, employees, clients, industry metrics and other pertinent information is designed.
Included with the presentation is a detailed memo outlining the entire structure of the transaction. The memo consists of the sale price, financing terms, a timeline of the transaction, executive compensation, synthetic equity, management, benefit levels, and appointed board members. The entire team presents the transaction design and presentation in a formal meeting with the trustee team.
Financing
Financing in an ESOP is a fundamental step. The initial process is to work with the shareholders and determine the amount of liquidity they desire. A reputable investment banker will know the market and thoroughly analyze all financing options available to the shareholders, ultimately determining what cash they will receive at closing.
Once identified, multiple financing sources are approached. The financing sources may include commercial banks, mezzanine or secondary lenders, or deeply subordinated creditors. Upon going to market, your investment banker will know how to approach the lenders to achieve the best available terms and conditions and achieve the desired liquidity. The shareholders also have the option of financing the transaction themselves through a seller note. They act as the bank in the transaction, whereby they receive monthly or quarterly principal payments along with interest payments at a market rate. Financing the debt themselves takes away cash in hand at closing yet allows shareholders maximum flexibility and a current return on the debt.
One other financing alternative is to raise equity from a private equity firm or the employees of the company. While not a commonly used approach, it is an option to possibly consider during the financing stage.
Closing
Once the design and financing stages are in commitment form, your team, and primarily corporate attorney, will create and review all documentation for the transaction.
Financing Documents
The financing documents are prepared by the lender's attorney and include any existing loans and the new loans associated with the ESOP transaction. These documents include a Loan and Security Agreement, Promissory Notes, and in some cases, with multiple lenders, an inter-creditor agreement will be required.
Transaction Documents
The company's attorney typically prepares the transaction documents. The most important document, the Stock Purchase Agreement, will outline the complete details of the transaction and include specific representations and warranties. Structuring and negotiating this document takes time and effort and should be planned for accordingly within the overall timeline.
Employment Agreements, synthetic equity plans such as warrants and stock appreciation rights, as well as corporate documents, are all included with the transaction documents.
ESOP Documents
Equally important is the ESOP Plan & Summary Description, which outlines the structure of the plan, the ESOP Trust, and essential points that pertain to those who participate in the ESOP.
ESOP Timeline
[insert timeline image]
The ESOP transaction process can vary depending on many influences including but not limited to, complexity, financing, legal, and regulatory matters. A typical timeframe from hiring your investment banker as your financial advisor, to closing is approximately five months. This timeline includes all of the five deal stages discussed here. As the timeline indicates, most of the stages overlap, but with a qualified investment banker, the transaction process will result in an effective ESOP installation which achieves the shareholders goals.
During the discovery phase, a high-level valuation and feasibility study are performed. Once these components are thoroughly analyzed by comparing a variety of structures and options, a decision is made as to whether to pursue an ESOP. If the shareholder(s) decides to move forward, the implementation phase begins, which includes the design of the ESOP, financing decisions, documentation, negotiation and closing.
We discuss each stage of the two phases in detail.
[Insert arrow image]
Valuation
During the valuation stage, a brief list of company financial information is used to analyze the business and create a high-level assessment of the company's value. PCE's process includes three different valuation methods, which are combined into a detailed model.
Discounted Cash Flow Analysis (DCF)
The DCF method uses the company's projected financials to create a detailed, present value of the projected cash flows. The DCF analysis incorporates growth, reinvestment requirements, working capital needs, and any one-time or discretionary expenses to calculate a normalized earnings before interest taxes depreciation and amortization – or EBITDA. This estimate is the inherent value of the business and is likely the most applicable to the overall valuation, so careful consideration on the company's projections should be adhered to.
Comparable Public Company Analysis
As the name implies, the comparable public company analysis is based on public market trading multiples. Market research is conducted to find and compare companies that are similar or related to your industry, such as your competitors. The public trading multiples used in the valuation are subsequently adjusted for differences such as cost and availability of capital, size, and growth rates.
Comparable Transactions
The comparable transaction method uses multiple databases to find closed transactions within your industry to identify the value based on multiples paid. Transactions found may or may not have information such as the price paid, multiples, and other information that is made public. Because only reported information is used in your company's valuation, this approach may not be applicable if enough relevant information is not available.
Once all three valuations methods are conducted, the methods are weighted to determine the range of value. These are typically weighted evenly; however, they vary for each situation. The range of value provides the shareholders a floor and a cap to which their investment banker believes the price of a sale can take place. Upon receiving the range, the shareholders will discuss with their investment banker if any material changes should be made
Feasibility Study
The next step in the process is to engage an investment banker as your financial advisor to complete detailed due diligence and produce a feasibility study that is all-encompassing of a transaction. The objective of the feasibility study is to help shareholders, board members, and management understand if an ESOP will achieve the required objectives. The report consists of a more in-depth valuation of the company after fully vetting all financial, company, operational, and legal diligence. Ultimately, the result of the feasibility study and valuation includes an analysis and presentation of multiple scenarios and options that are tailored to the shareholder's objectives.
In a sale to the ESOP, the company needs to be a corporation and, therefore, may need to address their structure. The company legal structure will be evaluated in the feasibility study to optimize the specific tax advantages for either the company, shareholder, or potentially both.
A key component of the feasibility study is the view of liquidity to the shareholders. It addresses how much can be provided, the market for terms and structure, and the company's ability to repay the debt. Presenting the gross and net proceeds to the shareholders in a transaction is important when they are considering the overall structure of the sale to the ESOP.
Once the feasibility study is complete, the findings and options are presented to the shareholders. A thorough discussion is done to determine what structure is best for everyone involved. The feasibility study can be modified based on the results initially presented to allow the shareholders to consider different structures or the combination of a few of the options. Once narrowed down to one structure, the shareholders must decide whether to pursue the ESOP transaction or to put it on hold for a future date.
Design
Now that you've decided to move forward with the ESOP transaction, the process to develop the structure, terms, and conditions of the overall transaction begins.
First, you must assemble the rest of your team if not already done. The company team includes the company attorney, accountant, and personal wealth advisor. Consequently, the buyer, or ESOP Trustee, will have their own team, which includes an attorney and valuation firm. (One unique characteristic about ESOPs is that you get to choose the trustee, and you get to choose your own buyer!) Your team will work with the shareholders and board members to interview and hire the trustee of the ESOP. Once the teams are in place, a comprehensive presentation outlining the company, its history, financial performance, employees, clients, industry metrics and other pertinent information is designed.
Included with the presentation is a detailed memo outlining the entire structure of the transaction. The memo consists of the sale price, financing terms, a timeline of the transaction, executive compensation, synthetic equity, management, benefit levels, and appointed board members. The entire team presents the transaction design and presentation in a formal meeting with the trustee team.
Financing
Financing in an ESOP is a fundamental step. The initial process is to work with the shareholders and determine the amount of liquidity they desire. A reputable investment banker will know the market and thoroughly analyze all financing options available to the shareholders, ultimately determining what cash they will receive at closing.
Once identified, multiple financing sources are approached. The financing sources may include commercial banks, mezzanine or secondary lenders, or deeply subordinated creditors. Upon going to market, your investment banker will know how to approach the lenders to achieve the best available terms and conditions and achieve the desired liquidity. The shareholders also have the option of financing the transaction themselves through a seller note. They act as the bank in the transaction, whereby they receive monthly or quarterly principal payments along with interest payments at a market rate. Financing the debt themselves takes away cash in hand at closing yet allows shareholders maximum flexibility and a current return on the debt.
One other financing alternative is to raise equity from a private equity firm or the employees of the company. While not a commonly used approach, it is an option to possibly consider during the financing stage.
Closing
Once the design and financing stages are in commitment form, your team, and primarily corporate attorney, will create and review all documentation for the transaction.
Financing Documents
The financing documents are prepared by the lender's attorney and include any existing loans and the new loans associated with the ESOP transaction. These documents include a Loan and Security Agreement, Promissory Notes, and in some cases, with multiple lenders, an inter-creditor agreement will be required.
Transaction Documents
The company's attorney typically prepares the transaction documents. The most important document, the Stock Purchase Agreement, will outline the complete details of the transaction and include specific representations and warranties. Structuring and negotiating this document takes time and effort and should be planned for accordingly within the overall timeline.
Employment Agreements, synthetic equity plans such as warrants and stock appreciation rights, as well as corporate documents, are all included with the transaction documents.
ESOP Documents
Equally important is the ESOP Plan & Summary Description, which outlines the structure of the plan, the ESOP Trust, and essential points that pertain to those who participate in the ESOP.
ESOP Timeline
[insert timeline image]
The ESOP transaction process can vary depending on many influences including but not limited to, complexity, financing, legal, and regulatory matters. A typical timeframe from hiring your investment banker as your financial advisor, to closing is approximately five months. This timeline includes all of the five deal stages discussed here. As the timeline indicates, most of the stages overlap, but with a qualified investment banker, the transaction process will result in an effective ESOP installation which achieves the shareholders goals.
During the discovery phase, a high-level valuation and feasibility study are performed. Once these components are thoroughly analyzed by comparing a variety of structures and options, a decision is made as to whether to pursue an ESOP. If the shareholder(s) decides to move forward, the implementation phase begins, which includes the design of the ESOP, financing decisions, documentation, negotiation and closing.
We discuss each stage of the two phases in detail.
[Insert arrow image]
Valuation
During the valuation stage, a brief list of company financial information is used to analyze the business and create a high-level assessment of the company's value. PCE's process includes three different valuation methods, which are combined into a detailed model.
Discounted Cash Flow Analysis (DCF)
The DCF method uses the company's projected financials to create a detailed, present value of the projected cash flows. The DCF analysis incorporates growth, reinvestment requirements, working capital needs, and any one-time or discretionary expenses to calculate a normalized earnings before interest taxes depreciation and amortization – or EBITDA. This estimate is the inherent value of the business and is likely the most applicable to the overall valuation, so careful consideration on the company's projections should be adhered to.
Comparable Public Company Analysis
As the name implies, the comparable public company analysis is based on public market trading multiples. Market research is conducted to find and compare companies that are similar or related to your industry, such as your competitors. The public trading multiples used in the valuation are subsequently adjusted for differences such as cost and availability of capital, size, and growth rates.
Comparable Transactions
The comparable transaction method uses multiple databases to find closed transactions within your industry to identify the value based on multiples paid. Transactions found may or may not have information such as the price paid, multiples, and other information that is made public. Because only reported information is used in your company's valuation, this approach may not be applicable if enough relevant information is not available.
Once all three valuations methods are conducted, the methods are weighted to determine the range of value. These are typically weighted evenly; however, they vary for each situation. The range of value provides the shareholders a floor and a cap to which their investment banker believes the price of a sale can take place. Upon receiving the range, the shareholders will discuss with their investment banker if any material changes should be made
Feasibility Study
The next step in the process is to engage an investment banker as your financial advisor to complete detailed due diligence and produce a feasibility study that is all-encompassing of a transaction. The objective of the feasibility study is to help shareholders, board members, and management understand if an ESOP will achieve the required objectives. The report consists of a more in-depth valuation of the company after fully vetting all financial, company, operational, and legal diligence. Ultimately, the result of the feasibility study and valuation includes an analysis and presentation of multiple scenarios and options that are tailored to the shareholder's objectives.
In a sale to the ESOP, the company needs to be a corporation and, therefore, may need to address their structure. The company legal structure will be evaluated in the feasibility study to optimize the specific tax advantages for either the company, shareholder, or potentially both.
A key component of the feasibility study is the view of liquidity to the shareholders. It addresses how much can be provided, the market for terms and structure, and the company's ability to repay the debt. Presenting the gross and net proceeds to the shareholders in a transaction is important when they are considering the overall structure of the sale to the ESOP.
Once the feasibility study is complete, the findings and options are presented to the shareholders. A thorough discussion is done to determine what structure is best for everyone involved. The feasibility study can be modified based on the results initially presented to allow the shareholders to consider different structures or the combination of a few of the options. Once narrowed down to one structure, the shareholders must decide whether to pursue the ESOP transaction or to put it on hold for a future date.
Design
Now that you've decided to move forward with the ESOP transaction, the process to develop the structure, terms, and conditions of the overall transaction begins.
First, you must assemble the rest of your team if not already done. The company team includes the company attorney, accountant, and personal wealth advisor. Consequently, the buyer, or ESOP Trustee, will have their own team, which includes an attorney and valuation firm. (One unique characteristic about ESOPs is that you get to choose the trustee, and you get to choose your own buyer!) Your team will work with the shareholders and board members to interview and hire the trustee of the ESOP. Once the teams are in place, a comprehensive presentation outlining the company, its history, financial performance, employees, clients, industry metrics and other pertinent information is designed.
Included with the presentation is a detailed memo outlining the entire structure of the transaction. The memo consists of the sale price, financing terms, a timeline of the transaction, executive compensation, synthetic equity, management, benefit levels, and appointed board members. The entire team presents the transaction design and presentation in a formal meeting with the trustee team.
Financing
Financing in an ESOP is a fundamental step. The initial process is to work with the shareholders and determine the amount of liquidity they desire. A reputable investment banker will know the market and thoroughly analyze all financing options available to the shareholders, ultimately determining what cash they will receive at closing.
Once identified, multiple financing sources are approached. The financing sources may include commercial banks, mezzanine or secondary lenders, or deeply subordinated creditors. Upon going to market, your investment banker will know how to approach the lenders to achieve the best available terms and conditions and achieve the desired liquidity. The shareholders also have the option of financing the transaction themselves through a seller note. They act as the bank in the transaction, whereby they receive monthly or quarterly principal payments along with interest payments at a market rate. Financing the debt themselves takes away cash in hand at closing yet allows shareholders maximum flexibility and a current return on the debt.
One other financing alternative is to raise equity from a private equity firm or the employees of the company. While not a commonly used approach, it is an option to possibly consider during the financing stage.
Closing
Once the design and financing stages are in commitment form, your team, and primarily corporate attorney, will create and review all documentation for the transaction.
Financing Documents
The financing documents are prepared by the lender's attorney and include any existing loans and the new loans associated with the ESOP transaction. These documents include a Loan and Security Agreement, Promissory Notes, and in some cases, with multiple lenders, an inter-creditor agreement will be required.
Transaction Documents
The company's attorney typically prepares the transaction documents. The most important document, the Stock Purchase Agreement, will outline the complete details of the transaction and include specific representations and warranties. Structuring and negotiating this document takes time and effort and should be planned for accordingly within the overall timeline.
Employment Agreements, synthetic equity plans such as warrants and stock appreciation rights, as well as corporate documents, are all included with the transaction documents.
ESOP Documents
Equally important is the ESOP Plan & Summary Description, which outlines the structure of the plan, the ESOP Trust, and essential points that pertain to those who participate in the ESOP.
ESOP Timeline
[insert timeline image]
The ESOP transaction process can vary depending on many influences including but not limited to, complexity, financing, legal, and regulatory matters. A typical timeframe from hiring your investment banker as your financial advisor, to closing is approximately five months. This timeline includes all of the five deal stages discussed here. As the timeline indicates, most of the stages overlap, but with a qualified investment banker, the transaction process will result in an effective ESOP installation which achieves the shareholders goals.
