How does the cost of selling to an ESOP compare to the costs of selling to another buyer?

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A common conception is that selling to an ESOP is much more complicated and expensive than selling to other buyers. That is not the case. Research by the NCEO shows that the typical cost of selling to an ESOP is about 2–4% of the total transaction. The cost of selling to another buyer is typically 4–9% of the total transaction. There are several reasons for this. The most important is that to sell to another buyer, owners typically must engage the services of a business broker or mergers and acquisitions (M&A) firm to locate potential buyers. These firms charge a success fee that varies with the size of the company. Smaller companies require a higher percentage. While some ESOP transactions also involve a success fee, most transactions do not because the owner has already identified a buyer. Even if a success fee is involved, the percentage of the transaction is typically much smaller. In sales to other buyers, sellers still need to engage financial advisors and attorneys. More information on the differences in cost is included in our article Why Selling to an ESOP Costs Less than Selling to Another Buyer.