Should You Consider An ESOP?
June 25, 2007
Should You Consider An ESOP provides an introductory look at ESOPs and discusses the following:
- Tax Incentives
- Is an ESOP is right for you?
- How do you start an ESOP?
- How Buyers Obtain Financing
- When an ESOP is Not a Good Solution
The article concludes with the following:
"Despite the highs and the lows, the important point to remember is that ESOPs can help you establish a transition plan for your business by:
- Creating a market for your company's stock
- Allowing you to sell your business gradually instead of exiting suddenly
- Providing an ownership culture within your company"
In The News
This press release announces that Paychex, Inc. was the only public company to be honored with a 2007 Innovations in Employee Ownership Award by the National Center for Employee Ownership and the Beyster Institute.
"The only public company among this year's award-winners, Paychex is well-known as a provider of payroll, human resources, and benefits solutions to small and medium businesses. With over 11,000 employees and $1.6 billion in revenues, Paychex was named one of Fortune magazine's "100 Best Companies to Work For" in 2007. Its multi-pronged equity compensation program includes an employee stock purchase plan, a company stock fund in its 401(k), and a broad-based stock option program that covers well over 90% of the work force. Employees take extensive advantage of the ability to invest in Paychex, and the company in turn invests in employees with award-winning employee training programs."
We also discussed the 2007 Grand Prize Winner here: Immediately Focusing on Building an Ownership Culture
For those of you following the Tribune transaction, here is a blog post that discusses Sam Zell, the newspaper industry, and the company's chances for long-term success. Also, here is an article discussing the potential final transaction price.
"CHICAGO Deutsche Bank Securities (DBS) newspaper industry analyst Paul Ginocchio lowered the target price for Tribune stock to $32-a-share from $34 on the "probability" that the Sam Zell-led $5.2 billion deal to take Tribune private may fall in value -- or founder altogether."
More ESOPs in the News
June 19, 2007
Here are some of the latest articles on ESOP companies and ESOP transactions in the news:
Roberts Hawaii Inc. sold 43.5% of its shares to an ESOP, providing ownership to 1,000 employee owners and creating one of Hawaii's largest ESOPs:
""The tourism and transportation industry relies on motivating employees to provide consistently high levels of service. The ESOP is an incredible benefit that, by making employees co-owners, aligns management and employee goals and objectives." He added, "This decision is also an added incentive for talented and skilled people to consider Roberts Hawaii as a place to build a career.""
This article profiles David Evans and Associates, Inc., (DEA), a Northwest land development, telecommunications, and transportation firm that has grown from 2 employees to a company on The Employee Ownership 100:
"DEA is 100 percent employee-owned through its Employee Stock Ownership Plan (ESOP) and individual shareholders. The ESOP holds 35 percent of the company's shares and each full-time employee is automatically an ESOP member."
Employee Ownership 100/Marriott Settlement
June 18, 2007
The June 14, 2007 Employee Ownership Update is online. The Update announces the latest Employee Ownership 100 list. The list ranks the 100 largest companies that are majority owned by an ESOP or similar plan with broad-based ownership. The top industries on the list are construction (16), manufacturing (13), engineering (12), and supermarkets (12).
The Update also discusses the Marriott settlement:
"...based on what we have learned from people familiar with the situation, Marriott was using a questionable approach in how it claimed tax deductions for its plan. Marriott's original release indicated the issue was using loan forgiveness into repay an ESOP loan, a very standard practice. There is no indication that this practice itself was questioned, but rather other issues with the structure."
In other news, a press release announces that "Profits grew 37 percent during first year as 100-percent employee-owned company":
"Forsythe has always been an entrepreneurial company, with people eager to roll up their sleeves and go the extra mile for our customers," says president William P. Brennan. "Employee ownership has added an undeniable sense of renewed energy to our people, and their efforts resulted in strong growth over 2005."
In the News
June 11, 2007
This post discusess recent ESOP companies in the news as well as an ESOP settlement and the possibility of another Tribune-like ESOP.
ESOP Stories
This article tells the story of Landscape Structures Inc., a Delano, Minn., company that makes playground equipment for schools and parks around the world:
"The company's 325 workers own 30 percent of Landscape Structures through an employee stock ownership plan (ESOP) that began in 2004, Chairman Steve King, 62, said. Revenue last year was $90 million to $100 million and it's likely to top $100 million this year for the first time in the company's 36-year history. The ESOP is a key part of the Kings' exit strategy, enabling them to liquidate their stake in the company gradually while maintaining a role in it. Managers and employees will stay in place through the transition."
The story of V3 Companies Ltd., a multi-disciplined consulting firm based in Woodridge, Illinois, and their commitment to their ESOP, is discussed in this article:
"One of the best decisions we ever made was to give our employees inclusive ownership by creating an ESOP," said Petroelje. "We've managed to provide V3 employee shareholders with an average 20 percent return on their investment every year."
This article recaps the story of Appleton, the nation's 35th largest employee-owned company. This ESOP story is unique because their management and workers voted to invest the majority of their retirement savings to acquire the company:
"Employees agreed. About 90 percent of Appleton employees voted to contribute an average of nearly 75 percent of their retirement savings to buy company stock, Van Den Brandt said.
In November 2001, the company announced it had used a $107 million employee investment to complete an $810 million buyout of the company. At the time, company shares were valued at $10. As of Dec. 31, 2006, shares were put at $33.62. (The private company's shares are valued twice a year. The next valuation is June 30.)"
This press release discusses Longwood-based Quality Manufacturing Services (QMS) Inc., which provides printed circuit board assemblies for military, commercial and industrial applications, and the sale of half of the company to an ESOP:
""ESOP sales offer the most flexible liquidity strategy available to a business owner," said John Eckbert of PCE Investment Bankers who advised Fehnel and Ayoub. ESOPs are an increasingly popular and advantageous means for business owners to create liquidity, reward and retain management and provide favorable future tax savings for companies. Several notable Florida companies that are ESOPs are Publix Supermarkets, US Sugar, and Mercedes Homes.
"After tax proceeds from the sale to an ESOP can be 25% more than a sale for the same price to a strategic buyer because of the tax incentives available to shareholders for selling to an ESOP," said Eckbert. "Additionally, the earnings of the company going forward can be shielded from future federal income taxes. Finally, an ESOP offers the flexibility of only selling a portion of the company now, while holding a significant stake in the upside of the business going forward.""
This story discusses Gear Motions Inc. and their path towards becoming a 100% employee owned company by using an ESOP.
"Plans call for the Gear Motions employee ownership plan to unfold in three stages. The initial phase got under way in late 2005, when one-third of Gear Motions' stock was transferred to the ESOP. The company borrows money on behalf of the program, and as the principal is repaid, an equivalent amount of stock goes into the employees' ESOP accounts, according to Gear Motions. The subsequent two phases, each involving another one third of the company's stock, are scheduled to start in 2010 and 2015, but the company is considering accelerating the timetable, Barron said."
Private Equity Strategy
This article discusses the possibility of Dow Jones & Co. being the next large publicly held company to use an ESOP transaction to take the company private.
ESOP Settlement
In March we discussed the announcement that the Internal Revenue Service was auditing Marriott International's federal tax returns over $1 billion in ESOP-related deductions. The company announced a $220 million settlement with the IRS and DOL.
"Marriott International said Friday that it has reached a $220 million settlement with the Internal Revenue Service and the Department of Labor following an IRS examination of its employee stock ownership plan."
In the News
June 11, 2007
This post discusess recent ESOP companies in the news as well as an ESOP settlement and the possibility of another Tribune-like ESOP.
ESOP Stories
This article tells the story of Landscape Structures Inc., a Delano, Minn., company that makes playground equipment for schools and parks around the world:
"The company's 325 workers own 30 percent of Landscape Structures through an employee stock ownership plan (ESOP) that began in 2004, Chairman Steve King, 62, said. Revenue last year was $90 million to $100 million and it's likely to top $100 million this year for the first time in the company's 36-year history. The ESOP is a key part of the Kings' exit strategy, enabling them to liquidate their stake in the company gradually while maintaining a role in it. Managers and employees will stay in place through the transition."
The story of V3 Companies Ltd., a multi-disciplined consulting firm based in Woodridge, Illinois, and their commitment to their ESOP, is discussed in this article:
"One of the best decisions we ever made was to give our employees inclusive ownership by creating an ESOP," said Petroelje. "We've managed to provide V3 employee shareholders with an average 20 percent return on their investment every year."
This article recaps the story of Appleton, the nation's 35th largest employee-owned company. This ESOP story is unique because their management and workers voted to invest the majority of their retirement savings to acquire the company:
"Employees agreed. About 90 percent of Appleton employees voted to contribute an average of nearly 75 percent of their retirement savings to buy company stock, Van Den Brandt said.
In November 2001, the company announced it had used a $107 million employee investment to complete an $810 million buyout of the company. At the time, company shares were valued at $10. As of Dec. 31, 2006, shares were put at $33.62. (The private company's shares are valued twice a year. The next valuation is June 30.)"
This press release discusses Longwood-based Quality Manufacturing Services (QMS) Inc., which provides printed circuit board assemblies for military, commercial and industrial applications, and the sale of half of the company to an ESOP:
""ESOP sales offer the most flexible liquidity strategy available to a business owner," said John Eckbert of PCE Investment Bankers who advised Fehnel and Ayoub. ESOPs are an increasingly popular and advantageous means for business owners to create liquidity, reward and retain management and provide favorable future tax savings for companies. Several notable Florida companies that are ESOPs are Publix Supermarkets, US Sugar, and Mercedes Homes.
"After tax proceeds from the sale to an ESOP can be 25% more than a sale for the same price to a strategic buyer because of the tax incentives available to shareholders for selling to an ESOP," said Eckbert. "Additionally, the earnings of the company going forward can be shielded from future federal income taxes. Finally, an ESOP offers the flexibility of only selling a portion of the company now, while holding a significant stake in the upside of the business going forward.""
This story discusses Gear Motions Inc. and their path towards becoming a 100% employee owned company by using an ESOP.
"Plans call for the Gear Motions employee ownership plan to unfold in three stages. The initial phase got under way in late 2005, when one-third of Gear Motions' stock was transferred to the ESOP. The company borrows money on behalf of the program, and as the principal is repaid, an equivalent amount of stock goes into the employees' ESOP accounts, according to Gear Motions. The subsequent two phases, each involving another one third of the company's stock, are scheduled to start in 2010 and 2015, but the company is considering accelerating the timetable, Barron said."
Private Equity Strategy
This article discusses the possibility of Dow Jones & Co. being the next large publicly held company to use an ESOP transaction to take the company private.
ESOP Settlement
In March we discussed the announcement that the Internal Revenue Service was auditing Marriott International's federal tax returns over $1 billion in ESOP-related deductions. The company announced a $220 million settlement with the IRS and DOL.
"Marriott International said Friday that it has reached a $220 million settlement with the Internal Revenue Service and the Department of Labor following an IRS examination of its employee stock ownership plan."
ESOP Growth Rate Increasing
June 1, 2007
The May 31 Employee Ownership Update is online. Here are some of the highlights:
- The NCEO estimates 800 new ESOPs were setup and 350 were terminated, netting an approximate 5% growth rate. Plan assets grew approximately 12%.
- A WSJ.com/Harris Interactive Survey found that 13% of employed U.S. adults have the opportunity to buy company stock. The Update compared the results to the results of the 2006 General Social Survey (GSS).
- "In the past five years, ESOP terminations are running about one-third below their rate in the 1990s."