Results of the ESOP Transaction Survey

The NCEO's first-ever ESOP transaction survey shows a number of trends in how companies structure, manage, and evaluate ESOP transactions. Data from the 240 companies that responded to the survey between February and September 2015 is the first attempt to gather the experiences of a large, diverse group of companies about the scope, management, and satisfaction with ESOP transactions.

One limitation of this study is that the transactions spanned substantial developments in the ESOP field, especially the fiduciary process agreement between GreatBanc and the Department of Labor. Appraisal standards, fiduciary scrutiny, and transaction structures are all different for the later transactions covered by this survey than for the earlier transactions. A second limitation is that the respondents represent a minority of all ESOP transactions, and there may be some bias in their behavior since many are likely members of the NCEO. Readers should exercise caution in drawing conclusions about ESOPs in general. Nothing in these results should be construed as a recommendation or a description of a best practice. Anyone considering an ESOP transaction should consult with qualified professionals who have expertise with ESOPs.

Some highlights of the findings include:

• The number of initial transactions for a minority of shares declined only slightly (from 44% of all transactions in 2010 and earlier to 40% after 2010).
• The number of initial transactions that involved 100% of the shares of the company increased dramatically, from 38% for 2010 and earlier to 56% for after 2010.
• The median amount of time it took responding companies to complete their transactions was six months.
• The majority of transactions included in this data (72%) were leveraged, and for the majority of those (60%), loans funded the entire amount of the transaction.
• Almost half of the transactions (46%) used at least some seller financing.
• Most transactions (63%) reported in this survey did not make use of the Section 1042 rollover.
• Many factors affect the cost of an ESOP transaction. Three that emerged from these results are the year of the transaction (more recent transactions are more likely to cost more), the number of services used, and the percentage of shares purchased.

More results are available to NCEO members in the current issue of the NCEO newsletter, available now in the members area of the NCEO website.