Sale Prices for Businesses Down in 2008 and 2009/ESOP Setup Fees
The July 15, 2009 Employee Ownership Update is online and discusses the following:
- India, Australia Ease Path for Employee Ownership Plans
- Median Sale Price for Businesses Down 27% in 2008
- Don't Pay a Percentage of a Transaction to Set Up an ESOP
Yesterday we discussed an Estimated Business Valuation Resource. The Update discusses how the median 2008 closely held company sales price was down 27% and how midmarket transactions in the first quarter of 2009 were down 25%:
Business Valuation Resources in Portland, Oregon, estimates that the median sale price of a closely held company fell from $551,000 to $400,000 in 2008. Presumably, it is down even farther now. Median net sales fell from $1.03 million to $804,000. In the first quarter of 2009, midmarket transactions were 25% less than a year ago, according to Dealogic.
Last month we discussed the Cost to Establish and Maintain an ESOP and how media coverage tends to overstate the cost to establish and maintain an ESOP. The Update discusses how you should generally being working with your advisors on a fee basis and not on a percentage of the transaction basis:
If you are thinking about an ESOP, do not pay a percentage of the transaction on the sale to set up a plan. No legitimate ESOP attorney charges such a fee, and, for a company this size, $450,000 is many times what is probably needed to set up a plan. In a few complex cases, companies may need investment banking services to help raise financing, in which case a percentage of the financing can be charged, but the very large majority of ESOPs do not need this kind of service.