An astonishing 90% of business owners are unaware of an important piece of information that could greatly improve their entire outlook on retirement, for themselves and for the future of their companies.
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2. Overview
About Us
CFO Plans LLC (“CFO Plans”) and Ambrose Advisors, LLC (“Ambrose”), entered into a MOU to identify ideal ESOP strategy
candidates. With offices in Woodland Hills, Newport Beach, Riverside, and Washington, DC, CFO Plans and Ambrose provides
advisory services in the areas of mergers & acquisitions, ESOP buyouts, capital raising, valuation, strategic/financial consulting,
post transaction ESOP implementation, dynamic level 7 organization development and independent ESOP legal services to a
wide variety of private companies. Our multi-disciplinary professional team that is capable of providing a one-stop solution for
entrepreneurs, shareholders and corporate boards of privately-held companies that are seeking liquidity using unique complex
leveraged ESOP solutions. The principals have collectively completed more than 500 corporate finance transactions over their
careers.
Advisory & Principal Services
Investment Banking Services
• ESOP Buyouts
• Capital Raising (Debt & Equity)
• Sales & Divestitures
• Acquisitions
• Management Buyouts
Consulting
• ESOP Feasibility Consultation
• ESOP Third Party Administration
• Valuation & Fairness Opinion
• Strategic/Financial Consulting
• Post transaction implementation
• Level 7 organization development
ESOP Legal Services
• Seller Legal Counsel
• Trustee Legal Counsel
• On-Going ERISA Counsel
• Estate & Tax Planning
Industry Specialization
Consumer
• Craft Brewing
• Food & Beverage
• Product Distribution
• Restaurants
Healthcare
• Hospitals
• Home Healthcare
• Pharmacies
Industrial
• Aerospace & Defense
• Diversified Manufacturing
• Test & Measurement
• Oil & Gas Equipment
• Chemicals
Services
• Distribution
• Engineering
• Construction
• Business Services
• IT Services
• Professional Services
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4. Value Proposition
Competitive
Valuation
Significant Cash at
Close
Personal Cap. Gains.
Taxes Deferral
Unparalleled Corp.
Tax Savings
Retention of
Operational Control
Meaningful
Employee Benefit
Key Management
Incentives
We design and implement well-structured ESOPs to maximize the benefits for all stakeholders – the Sellers, the
Company, the management, and the employees. Our team strives to maximize after-tax proceeds of the Selling
Shareholders and expedite repayment of transaction proceeds. The transaction allows employees to participate in the
upside of the business and motivates the management team through synthetic equity incentives outside the ESOP.
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Maximizing ESOP Advantages
5. Value Proposition
We provide a unified, multi-disciplinary team of in-house investment banking, consulting and legal professionals to
provide a complete and comprehensive sell-side solution to our clients. We seek to create an outcome that rewards
selling shareholders, investors, and employees. Our multi-disciplinary team of professionals create a working
environment that allows us to support the client and their advisors with an experienced, specialized ESOP team that
can handle the full range of the transaction cycle.
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Phase I:
Transaction Structure & Design
Phase II:
Transaction
Post Transaction
Investment Banking Team
Newport Beach, CA
ESOP Legal Counsel
Washington, D.C.
Third Party Administrators
Riverside, CA
Investment Banking Team
Newport Beach, CA
ESOP Legal Counsel
Washington, D.C.
Level 7 Organization
Development
Woodland Hills, CA
Third Party Administrators
Riverside, CA
With the finest team of ESOP professionals in the field, we provide a turnkey solution with a top-notch investment
banking team, ESOP-specialized legal counsel, full-service third party administrators and organization
development experts
Our team customizes ESOP buyout strategies,
creates tax-effective, dynamic and staged succession plans for business owners
End-to-End Solution
6. Value Proposition
ESOP Trust
Trustee Legal Counsel
Independent Trustee
Trustee Financial Advisor
Arms-Length
Negotiation
Advisory & Consultation
TrustParticipants
Representation
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Company & Sellers
Investment Banking
Legal Counsel
Third Party Administrators
Legal Counsel
Investment
Banking
Third Party
Administrator
Bundled approach promotes
efficiency
Best-of-Breed Advisory Under One Roof
Employees
Procedural Prudence
Company
& Sellers
7. Senior Debt
Mezzanine Debt
Seller Financing
Private Equity
• Secured debt with lowest
cost of capital
• Provided by Banks, BDCs,
institutional debt funds
• Pricing is ~ 4-5%
• Unsecured or 2nd-Lien debt
subordinated to Sr. Debt
• Provided by institutional debt
funds and BDCs
• Pricing is ~ 12-18%
• Unsecured, subordinated
debt to outside lenders
• Provided by the Sellers
• Pricing is ~11-14% including
warrants
• Equity investment
• Provided by institutional
private equity funds
• Target return is ~ 25%+
Value Proposition
Leveraged ESOP buyout transactions are typically financed with outside capital and use seller financing to bridge the
gap in the capital structure. If the company has a strong market position and/or substantial size of operation, it is
possible to bring in private equity investment to replace or minimize seller financing.
Sr.+Mezzor
Unitranche
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Capital Placement Capability
9. 100% ESOP Buyout Case Study
• Founder of a private company with a 5-year exit plan
• Explored options to sell to either a third-party or management team
Background
• Sell at full market value
• Minimize taxes
• Retain operational control until fully paid off
• Reward mgmt. & employees
• Certainty of closing & highly confidential process
Key Objectives
• Decided to sell 100% equity to ESOP at a competitive fair market price
• Deferred capital gains taxes using IRC 1042
• Company became a tax exempt entity soon after the closing
• Will maintain operational control until fully repaid
• Attractive return on seller note, including future equity upside
Conclusions
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10. 100% ESOP Buyout Case Study
• Company was a C-Corp and has a fiscal year ending September 30
• Company reported average adjusted EBITDA of $7.0 million per year
Company Snapshot
• $41.0MM Valuation (~6.0x EBITDA)
• $25.0MM financing raised ($5.0MM LOC + $20.0MM term loan)
• Transaction closed in 4 months
• Company elected S-Corp status on Oct. 1st and became a tax-exempt entity
Deal Summary
• Deferred capital gains taxes on the entire $41.0MM
• $20.0MM up-front cash
• $21.0MM seller note with a target annualized return of 12.0%
• Created a separate Management Incentive Plan outside of ESOP
Seller’s Benefits
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11. 100% ESOP Buyout Case Study
At closing, money moved among Bank, Company, ESOP and Seller to properly fund the transaction. Seller got to
recognize and defer gains on the entire $41.0MM. Seller received $20.0MM cash + $21.0MM high-yield seller note.
Step1: Bank loans to
Company
•$20.0MM Term Loan
•$21.0MM Bridge Loan
Step 2: Company loans
to ESOP
•$41.0MM Inside Loan
Step 3: ESOP pays to
Seller
•$41.0MM cash for 100%
Stock
Step 4: Seller loans to
Company
•$21.0MM Seller Note
Step 5: Company
repays Bank
•$21.0MM Bridge Loan
Payoff
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12. 100% ESOP Buyout Case Study
Sale to ESOP has the potential to provide more after tax proceeds over a reasonable period of time post-closing while
the Seller maintains operational control until full repayment of the seller note.
[ESOP] [Non-ESOP] [ESOP] - [Non-ESOP]
Sale to ESOP Third Party Sale Variance
Purchase Price $41,000,000 $41,000,000 $0
Less: Capital Gains taxes 35% $0 ($14,350,000) $14,350,000
Less: 1042 Deferral Strategy Deposit 10% ($4,100,000) $0 ($4,100,000)
After-Tax/Deferral Proceeds $36,900,000 $26,650,000 $10,250,000
Less: Seller Note Reinvestments ($21,000,000) $0 ($21,000,000)
Net After-Tax/Deferral Cash Proceeds {A} $15,900,000 $26,650,000 ($10,750,000)
Annual Dividend on Up-Front Cash Proceeds [5 years] 5% $3,975,000 $6,662,500 ($2,687,500)
Less: Capital Gains Taxes 35% ($1,391,250) ($2,331,875) $940,625
After-Tax Return on Up-Front Cash Proceeds {B} $2,583,750 $4,330,625 ($1,746,875)
Seller Note Principal $21,000,000 $0 $21,000,000
Seller Note Interest [5 years] 4% $4,200,000 $0 $4,200,000
Seller Note Warrant Exercise [20% Equity] $8,200,000 $0 $8,200,000
Less: Ordinary Income Taxes 40% ($1,680,000) $0 ($1,680,000)
Less: Capital Gains Taxes 35% ($2,870,000) $0 ($2,870,000)
After-Tax Proceeds on Seller Note Reinvestment {C} $28,850,000 $0 $28,850,000
Total Life-Time After-Tax Proceeds {A}+{B}+{C} $47,333,750 $30,980,625 $16,353,125
Add: 1042 Deferral Strategy Deposit {D} $4,100,000 $0 $4,100,000
Total After-Tax Proceeds for the Estate {A}+{B}+{C}+{D} $51,433,750 $30,980,625 $20,453,125
ESOP Premium over Non-ESOP 66.0%
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17. Who are the Best Candidates?
Company has been in operation for more than 3 years
Company has more than 15 employees
Company is profitable with cash flow sufficient to service debt
Company has a capable succession management team
Owners have a desire to gain liquidity and “lock-in” value
Owners plan to exit the business completely within 5 years
Owners wish to maximize after-tax returns in a gradual or “staged” sale of the Company
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18. ESOP Myths
ESOP Myths The Facts
ESOPs are Mainly an
Employee Benefit
ESOPs are a corporate finance tool that can enable sellers to achieve liquidity at full FMV.
Also, sellers, the company, management and employees can receive substantial benefit
as a result of the significant tax savings from becoming an ESOP company.
ESOPs Cannot Pay as Much
as Other Buyers
ESOPs can pay fair market value for a company’s stock, as determined by an
independent valuation. Evidence shows that this value is typically between a strategic
value and an LBO value. ESOPs are not limited to what they can pay based on debt
levels or required rates of returns – as is the case in an LBO.
ESOPs Are Staged
Transactions That Must Be
Completed In Steps
Using the 100% ESOP transaction structure, all stock can be sold in a single transaction.
Employee Control
Employees do not assume active management of the Company and do not have access
to books, records or confidential information. Company is run by its board of directors
and management team post-transaction.
High Degree of Regulatory
Compliance Required
The ESOP structure requires good corporate governance and regulatory compliance.
Normal “fairness” in business dealings is generally the standard in ESOP transactions.
Where specific compliance issues are involved, cash flow and other benefits significantly
exceed compliance costs.
Expensive
Costs for implementing a 100% ESOP are comparable to those of a sale to an outside
buyer. The ESOP results in immediate and long-term cash flow enhancement through
significant tax savings. Costs for a partial ESOP are substantially less, depending on
complexity.
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19. What’s in it for the
Management Team?
Management Team is the Primary Business
Advisor:
Differentiate:
Senior Management Team, is most likely the primary
business advisor to the business owner and shareholders.
If an ESOP is implemented correctly, Synthetic Equity
(stock based compensation) representing 5-20% of the
value of the company can be set aside to provide an
economic incentive to motivate and empower senior
management. Further, an ESOP strategy is a unique option
to obtain liquidity in a extremely tax-efficient manner for
management with employee friendly options. Net take
home for Management and ESOP participants are almost
always higher. Be proactive and get credit for bringing this
unique idea to your company.
Senior Management and C-Level Executives may not
understand how to use today’s ESOP strategy as a tool of
corporate finance and economic empowerment. They may
not understand how to help obtain additional liquidity in a
management/employee friendly and a tax-efficient
manner. By understanding and properly utilizing an ESOP
strategy, you will differentiate your company in the
marketplace. You will also have an unique advantage of
operating your company as a tax exempt entity, which very
few private companies enjoy. Those who do not
understand the economic advantages and the power of
today’s ESOP’s are missing out on a unique and dynamic
economic opportunity for themselves, their company and
their local community.
Business Perpetuation: Value Addition:
If the business is sold to a third party, Management may
lose control of making key decisions in the business.
Typically, the acquirer will bring in their own management
team. If a business is sold to an ESOP however, not only
will management remain in place, they will have a larger
equity stake in the company, and secure their retirement
compared to their peers in other private companies.
As an integral part of the Management and ESOP strategy
implementation team, you will get to be part of
transforming your organization into a dynamic, highly
motivated, wealth creating machine. You will also position
your company to acquire other companies on a pre-tax
basis, which is a crucial advantage in growth and
acquisition strategy.
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22. Key Experience
vv
100% ESOP
vv
Second Stage ESOP
to 100%
vv
Second Stage ESOP
to 100%
vv
Partial ESOP
vv
Partial ESOP
vv
100% ESOP
vv
100% ESOP
vv
100% ESOP
vv
100% ESOP
vv
100% ESOP
vv
Second Stage ESOP
to 100%
vv
Partial ESOP
vv
Fairness Opinion
vv
Second Stage ESOP
to 100%
vv
Second Stage ESOP
to 100%
vv
Sale of Majority ESOP-
Owned Company
22*Represents transactions led/executed by Ambrose professionals over their careers