ESOP: A different type of sale

2019 has seen much ado about industry M&A. Amid growing interest from private equity firms in the industry, another type of sale is an option to staffing firm owners. Employee stock ownership plans — ESOPs, for short — are a type of sale from which the employees may benefit.

While going ESOP is a viable alternative to traditional M&A, they are not as common and are very complex, says Akash Taneja, managing director at investment bank De Bellas & Co. On the plus side, though, they can encourage workers to do what’s best for the company, and they have tax advantages to the seller. However, they are not cost-effective for smaller companies.

Here’s how US Securities and Exchange Commission defines an ESOP:

“An employee stock ownership plan is a retirement plan in which the company contributes its stock (or money to buy its stock) to the plan for the benefit of the company’s employees. The plan maintains an account for each employee participating in the plan. Shares of stock vest over time before an employee is entitled to them. With an ESOP, you never buy or hold the stock directly while still employed with the company. If an employee is terminated, retires, becomes disabled or dies, the plan will distribute the shares of stock in the employee’s account.”

Eastridge Workforce Solutions, which ranks on SIA’s list of largest US staffing firms, did an ESOP earlier this year.

PREMIUM CONTENT: Staffing and Workforce Solutions Mergers & Acquisitions – An interactive dashboard

“Our culture is very important to us,” says Adam Svet, CEO of Eastridge, which has been a family-owned company for 47 years. “We felt the transition to an employee-owned environment would create a permanent home for our team and for our company.”

Svet and his brother Jason Svet, president of technology and management, made the decision to pursue ESOP after the passing of their father Robert Svet, who had founded the family company.

On average, it takes about six months to put an ESOP in place, although some firms can do it in 90 days, Adam Svet says. But one word of advice for those thinking about an ESOP: Reach out to people in your network who have worked with ESOPs. Doing so can save a large amount of time, he says.

For more information on Staffing M&A, read my SI Review Online Showcase article, “Deal Now or Wait.”

Craig Johnson

Craig Johnson
Craig Johnson is senior managing editor at Staffing Industry Analysts. He can be reached at cjohnson (at) staffingindustry (dot) com

Craig Johnson

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