Plan will start at 42% of ownership and may move to 100% over time

BDO USA, the nation’s sixth-largest accounting and advisory firm, announced it will set up an ESOP that will buy a substantial minority interest in the company. The plan will include more than 10,000 U.S. employees. In July this year, BDO converted from a partnership to a corporation, allowing it to seek outside equity. Bloomberg and other sources reported that Apollo Global Management is providing $1.3 billion in debt financing to fund purchases of shares by a new employee trust and for other purposes.

The Wall Street Journal reports that “BDO’s partners will sell about 42% of their shares to the trust and retain the rest, while also taking a cut to their compensation and giving up their pensions…The firm’s youngest partners would have to retire and sell their shares for the firm to be fully owned by the ESOP, which would likely take about 20 years.”

BDO USA CEO Wayne Berson stated, “An ESOP is the realization of our purpose of helping people thrive, every day. It is a game-changer for our people, clients and communities, designed to improve lives for generations to come," as reported in a BDO press release. "Amid the changing landscape of our profession, the ESOP unlocks the value of our firm today and embodies our strategy to sustain a strong, caring and resilient business for tomorrow. We are proud to establish this ESOP to invest in each other so everyone who contributes to our success has the opportunity to benefit from it.”

BDO USA Chief Operating Officer Steve Ferrara noted in the same press release that “[t]he ESOP also has material benefit to the firm. It allows for continued investment in quality, as well as operations and growth strategies.”

Many of the stories on this noted that part of the motivation for setting up the ESOP was that younger employees would like the opportunuty to become partners. The scenario is much like engineering, where a lot of firms have a lot of partners. When they want to sell, it is either sell the firm, find another partner to use after-tax money to buy them out, or do an ESOP. ESOP tax advantages can make that very appealing, and seven of the largest 15 engineering firms in the US are now ESOP owned. 

The establishment of an ESOP at a major firm is important in itself, but it also could be a major step forward for ESOPs. The main barrier to ESOP growth has been that professionals advising clients on business transitions are either unfamiliar with ESOPs or prefer that their clients not use them. Now a major accounting firm will have thousands of advisors who will be much more familiar with ESOPs.