Is now the right time to sell your company?
Do you understand ALL of your options in exiting your business?
Have you considered the benefits of an ESOP?
Let Woodall Group help you answer these questions.
We have been there and done that. Mr. Woodall successfully established an ESOP for his own government services company back in 1999 and ultimately sold the company to a publicly traded company benefiting all employees.
We offer a wide variety of valuation services that will help you determine an unbiased value that is appropriate for your situation.
ESOP transaction valuations and feasibility studies
Woodall Group serves as an independent financial advisor to the trustee of an Employee Stock Ownership Plan (ESOP) or to shareholders who are selling to an ESOP. Our experienced professionals are able to design and implement an ESOP transaction from start to finish. We help companies, shareholders, and ESOP Trustees understand the tax benefits, retirement benefits, and other financial benefits of an ESOP structure from the perspective of employee-participants, the sponsoring company, and the sellers. Our ESOP feasibility studies determine the ability of a company to repay ESOP debt and analyze whether certain value-enhancing strategies can be implemented such as the use of put rights or warrants. We also perform the ongoing annual update valuations of ESOP companies, as required by the Department of Labor.
Benefits of an ESOP
ESOPs are a great way to provide a long-term financial incentive to all employees to help grow the value of your business and provide rich retirement benefits for the ESOP participants. One of the most important elements of an ESOP is consistently determining the market value of the company's stock owned by the ESOP. Woodall Group has a long history of helping ESOP trustees and participants to realize and understand one of their most important financial assets - their ESOP retirement account. Getting ESOP participants excited about their stock value will result in greater collective efforts to improve the efficiency of your company. Mr. Woodall has experience with setting up his own company's ESOP and then ultimately merging the company into a publicly traded company and all employees benefited from that deal.
ESOP Valuation Services
Gregg Woodall, managing partner in Woodall Group, has been working with ESOPs and performing independent valuations for ESOP Transactions and annual ESOP update valuations since 1998. The chief regulator in the ESOP world is the U.S. Department of Labor (DOL), and the regulations issued by the DOL stipulate that ESOP transactions in closely held companies must be based on a current appraisal by an independent, outside valuation expert. These same regulations extend to annual update valuations that are required for ESOP plan administration and participant reporting purposes. These regulations are intended to protect the financial interests of ESOP participants who are not directly involved in the initial purchase of shares by the ESOP and who also do not have other means to understand the annual value of their account balance in the ESOP.
Valuations for ESOP purposes are generally more complex than regular business valuations. An ESOP valuation must incorporate all of the traditional business valuation issues, including determining fair market value using several different valuation methods, applying control premiums and liquidity discounts, considering pass-through tax structures, and many other factors. In addition, the valuation of an ESOP must be comprehensive enough to withstand a review by a regulatory agency such as the Internal Revenue Service ("IRS") and the DOL.
We have worked closely with trustees both at the front end when the ESOP purchases stock and for the annual update valuations. We are supportive members of the National Center for Employee Ownership to keep abreast of the central issues facing ESOPs today and to be in the mainstream of current thoughts and trends impacting ESOPs and their valuations.
Two of the first steps to take when considering an ESOP are:
(1) Conduct a Feasibility Study
The purpose of an ESOP feasibility analysis is to give the selling shareholder(s) and sponsor company management the information needed to make an informed decision about whether to move forward with an ESOP implementation. This may be a "Comprehensive" analysis by an outside consultant, complete with market surveys, management interviews, future projected allocations and value for participants, and detailed financial projections, or it may be a "Limited Scope" feasability analysis providing essential key elements to allow for a good decision to move forward or not. Generally, comprehensive feasibility studies are needed where there is a desire for additional consideration about the ESOP's ability to repay the loan and cash flow the plan. Any analysis, however, must look at several items.
(2) Conduct a Valuation
The feasibility study will rely on rough estimates of the value of the stock for the purpose of calculating the adequacy of cash and payroll. In public companies, of course, these estimates will be fairly accurate because they can be based on past price performance. In private companies, they will be more speculative.
The next step for private firms (and some public companies as well) is a valuation. A company may want to have a preliminary valuation done first to see if the range of values produced is acceptable. A full valuation would then follow if it is.
Doing a valuation before implementing a plan is a critical step. If the value is too low, sellers may not be willing to sell. Alternatively, the price of the shares may be too high for the company to afford. The valuation consultant will look at a variety of factors, including cash flow, profits, market conditions, assets, comparable company values, goodwill, and overall economic factors.