Actual Examples of ESOPs
The team of experts at Financial Exit Planning, Inc. completes about twenty-five (25) transactions per year on average. Approximately eighty percent (80%) of these transactions involve debt financing only. The remaining twenty percent (20%) involve some sub-debt financing.
Our clients come from a variety of industries. We have experience working with companies in manufacturing, services, communications, construction, finance, retail, Information Technology, restaurants, semi-conductor, wholesale distribution and many others.
We focus on small to medium sized transactions assisting business owners with $5M to $100M in equity. Having said that, we have designed and executed very large and complex ESOP & MSOP transactions --- with our customary fast, efficient and cost effective success.
October 2002 we closed an ESOP transaction for a prominent construction firm in Fulton, Mississippi specializing in commercial structures and retail complexes. The ESOP itself was $30,450,000 for 70% of the company. We also provided refinancing of an additional $10 million at an interest rate of 4.810% year term and a 10 year amortization. The total transaction was $44.5 million and we saved the company 2% on debt. Over the next five (5) years we will move more than $80 million to the selling owners after tax.
We completed another ESOP in the construction industry for a North Carolina firm with seven operating divisions: Asphalt, Commercial, Concrete Products, Equipment, Grade, Structures, and Utilities. In addition to the heavy construction operation, there are six district offices, ten asphalt plants, thirteen ready mix concrete plants and one concrete block manufacturing plant. Our ESOP involved a $25 million acquisition plus an additional $41 million in refinancing. This transaction is being completed in three steps. The first step closed in October of 2001 the last phase will close in mid 2003.
February 2003, we completed refinancing documents for the repurchase liability of $20 million for an ESOP placed in a cellular technology and semi-conductor engineering, manufacturing and marketing company. The company was founded in 1959, and is a North American sales and marketing partner for RF, wireless, optoelectronic and fiber optic semiconductor products for a global manufacturer.
They now boast of being one of the largest employee-owned companies in Silicon Valley, with 13 offices in the US and among the 100 largest private companies throughout all of California. This company's annual employee turnover rates are consistently half those of other technology firms in the Silicon Valley.
The ESOP was first implemented in 1984 but the plan failed to consider the repurchase liability. The original reason for putting the ESOP in place was that the company needed additional debt capacity. Even though this ESOP was implemented poorly by our competition it accomplished the short term goal of getting the company lower cost debt and buying out several founding owners.
We helped this company by correcting the problems with their existing ESOP and arranging new financing at 3.2% to 4% in private placement debt. This was an extremely complex transaction. We then helped CFO to line up commercial paper and other even lower cost debt.
January 6, 2003 we began work on refinancing $450 million of working capital plus a potential $71 million ESOP transaction for a company which provides products, financing, and other agricultural-related services to farmers, producers and suppliers throughout the United States since 1985.
We found them working capital by using a commercial paper arbitrage while at the same time we were helping them to defend against a venture capitalist (working with a previous lender to the company) trying to force a hostile takeover.
The company is waiting for the stockholder vote on the takeover proposal and will no doubt resume the financing of the ESOP late March 2003. The company may also bring a law suit against the previous lender for lender interference after the stockholder vote.
We are currently involved in a major and on going project to privatize a State owned Health Care System. The unions are driving the health care system into bankruptcy. We are retained to negotiate a wage concession from the union and in exchange give the employees company stock from an ESOP in place of part of their current wages. This is an $80 million transaction that will be partly financed using the wage concession and part is coming from strategic buyers.
Another multiple step ESOP is one of the top 40 largest ESOPs in the USA. We created this original ESOP in 1996. This ESOP was designed for a family owned company with $325 million in sales and $40 in debt with a total EBITDA of $3 million a year.
As a direct result of this ESOP transaction, the family owned company went to $27 million EBITDA. We then sold 38% of the company to an ESOP for $75 million. This action moved $75 million to the owner's tax free on a 1042 tax free exchange and obtained a loan back to the selling owners of $68 million in after tax cash.
The second transaction was in 1999 where we sold another $40 million to the ESOP and used the increased debt capacity to acquire two competitors and a retail distribution channel. The company is located in Hickory, North Carolina.
Just a Few Other Examples:
We completed an ESOP transaction in 2002 for a very large engineering company. This transaction involved $20 million to buy out the retiring owners plus we are helped them implement an acquisition strategy using the ESOP.
We sold three companies in 2000 using the ESOP to help the buyer finance the purchase. One company helps Chrysler and GM sell their returned lease cars to local markets. The fist transaction was $8 million and the second transaction was $31 million.
Another company for the same holding company was divested to the vertical market channel. This company revolutionized the way in which companies buy safety shoes. Instead of having shoe vans pull up in the parking lots of factories, their system allowed purchases of safety shoes to be made by the HR personal and home delivery was arranged from internet. We found mezzanine financing of $5 million then later sold the company to Wolverine shoes for $17 million using an ESOP at Wolverine to help them finance the purchase.
Specifics about these and other ESOPs available for prospective clients.
As you evaluate consultants and consider all of your options for company expansion or your personal exit strategy, be sure to ask...
"How many ESOP transactions have you actually completed?"