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ASSESSING ESOP FEASIBILITY
I. INTRODUCTION
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• CONTROL VALUE
• Strategic buyer
• Financial buyer (includes ESOPs)
• MINORITY VALUE
• Public Company stock
• Private Company with an ESOP
• Private Company without an ESOP
• Liquidation value
• Is the 3rd Party buyer a Strategic Buyer or a
Financial Buyer?
• The “put” option
• Sellers may be participating in the ESOP
• Some ESOP structures allow for Sellers to
receive additional equity upside through
warrants
ANSWER:….. It depends
B. TAX BENEFITS
1. Corporate Taxes: Pre-tax dollars used to buy out owners (C corp or S Corp)
2. Personal Taxes: No capital gains if Section 1042 election (C corp only)
ESOP purchase $ 600,000$1,000,000
Redemption $1,000,000
Stock Price After-tax Cost
$1,000,000
401(k) contribution $ 600,000 $1,000,000
Redemption $1,000,000
Amount After-tax Cost
$1,000,000
1.Shareholders Agreement
Total $1,600,000$2,000,000
2.ESOP Approach
ESOP Contribution & Purchase $ 600,000$1,000,000
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Bank
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III. NON-FINANCIALCONSIDERATIONS
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