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J.L. Pierson & Co. LLC

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) VALUATIONS

There are many good reasons to sell your business in part or in full to an ESOP: create continuity, generate liquity, motivate your employees, etc. Then there are the tax reasons: IRC section 1042 creates powerful incentives to defer most capital gains on the sale; check your tax advisor. In recent years, S corporations have also been allowed to sponsor an ESOP, providing a good deal of flexibility to the firm. ESOP feasability studies are highly technical and must pass muster with the IRS and the DOL. There are now textbooks on the subject of ESOPs, a valuable addition to the scanty guideline provided by the government. Do not hesitate to call or e-mail. JLP&Co.LLC can help you conceptualize and, if you go forward, prepare the necessary studies and annual valuations !

Typical Case No. One:

In the context of a corporance governance battle, i.e. minority shareholder litigation, an ESOP was created by management to hold stock in this regional hospitality firm for long-tenured employees. We valued the trustee's interest in the business by making detailed references to the pricing multiples of publicly traded firms in similar businesses, and by capitalizing sustainable cash flow over the length of the industry's business cycle. Non-operating assets were added to the value of the business based on real estate appraisals.

Typical Case No. Two:

A trading company specializing in supplying the raw materials required by a capital intensive industry had created an ESOP in order to provide an additional benefit to its well-educated staff, and some liquidity to the sole owner and active manager. The ESOP owned a minority interest in the firm, and we provided valuation services to the ESOP.

Typical Case No. Three:

The owner of a regional plumbing/HVAC company originally sold a few shares to a newly-created ESOP in order to foster corporate fidelity and provide a valuable retirement benefit. Additional contributions were made during boom years, as the company diversified by buying an oil distributor. We have been valuing the ESOP's interest over a period of several years in order to comply with IRS/DOL regulations.


Click here for a 1999 article in our newsletter on Fairness Opinions in ESOP transactions.
Click here for a 2000 article in our newsletter on ESOPs in S corporations.
Click here for a 2004 article in our newsletter: Is An ESOP Right For Your Client ?



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J.L. PIERSON & CO. LLC

BUSINESS VALUATION: NY, NJ, CT, ETC.

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Revised -- 03/15/12