DVS Group for ESOPs
Creating Sustainable Growth for ESOPs Through Strategic Acquisitions
Serving ESOPs is a vital expression of our ‘Why’ at DVS Group, as we enthusiastically believe in the impact ESOPs create for employees, their families, the sustainability of the actual businesses and communities in which the businesses operate.
As ESOPs mature and retire original acquisition debt, new challenges often emerge – excess cash accumulation, growing repurchase obligations, business diversification, etc., and the need for (sustainable) growth increases. Meeting all these business challenges with purely organic growth can be hard or impossible, which means ESOPs must consider inorganic growth (acquisitions). Unfortunately, many ESOPs don’t have an experienced, internal team to implement an effective acquisition strategy.
DVS Group acts as a mature ESOP’s external corporate development team to achieve the objectives of an inorganic growth strategy.
Your Full-Service Acquisition Advisor:
DVS Group provides a turn-key service for ESOP clients: working with management to develop an acquisition strategy as part of the ESOP’s strategic plan, researching and managing outreach to acquisition targets, sourcing proprietary (off-market) acquisition targets, managing communication with targets, modeling financials, preparing initial valuation estimates, structuring and negotiating Letters of Intent, managing post-LOI Due Diligence, coordinating legal and accounting advisors, participating in all negotiations through Closing. DVS Group is with our ESOP clients every step of the way in their acquisition journey.
For Business Owners: Why Sell to an ESOP?
- Tax Advantages
- At the point of sale | Section §1042 of the IRC provides an avenue for privately held businesses structured as a C-Corp selling to an ESOP trust, to defer, and in some cases, potentially eliminate all taxes on stock sale proceeds to an ESOP.If your company is currently structured as an LLC or S-Corporation, restructuring options may allow you to take advantage of the same elimination tax benefits described above. Reach out to the DVS team to discuss the way a tax deferred rollover can make sense with the sale of your business.
- Ongoing Federal Income Tax Advantage | ESOPs compete in the marketplace with a niche advantage, in that, a 100% S-Corporation owned by an ESOP does not pay federal income tax. This structural advantage allows ESOP-owned companies to operate in a tax-efficient ecosystem. For any portion of your sales price delivered in equity-linked consideration, your rollover investment can grow within a tax-advantaged environment.
- Competitive Sale Price & Strong Buyer Profile | ESOP buyers in the marketplace are strong and well-capitalized partners, and in many cases, stronger buyer profiles than the majority of the financial sponsors & private equity funds you will engage. Because mature ESOPs are advantaged from a federal income tax perspective, they typically grow larger cash balances and, without debt financing, are more competitively liquid buyers. In addition, ESOP owned companies are operating companies, which means they can justify higher debt levels from lending markets, which financial sponsors and private equity groups without a platform investment cannot.
- Rewarding Your Employees | An ESOP allows your employees to participate in the future success of the business through ownership in the ESOP trust. Employees typically vest according to the existing ESOP plan schedule, aligning incentives and helping retain the team that helped build the company.
- Lasting Legacy | Selling to an ESOP helps preserve the culture, leadership continuity, and community impact you created.Unlike much of the market in financial or strategic buyers, who buy your company with an exit horizon already calculated, typically as little as 3–7 years, ESOP buyers are frequently terminal buyers, meaning your business will not transfer hands again. ESOP buyers ensure your company continues operating with the values and vision the founders and current operators established.
