Benesch’s Employee Benefits & Compensation Team has significant experience with all aspects of employee stock ownership plans (ESOPs). This includes transactions, day-to-day operational and compliance advice, and dispute resolution. Because our ESOP practice is broad, we are able to leverage our experience in each specific area to bring a unique view to the practice as a whole.
ESOP Transactions
Our ESOP transactional practice is split between "buy-side" engagements and "sell-side" engagements. Within each of those practices, we have significant experience with traditional ESOP-formation transactions. However, we also have substantial depth advising on alternative structures, and pride ourselves in being a thought leader in that space.
Sell-Side Transactions
Our "sell-side" practice is a blend of ESOP-formation transactions and transactions later in the life cycle of an ESOP. We have represented a number of shareholders (and shareholder groups) who have used an ESOP as part of their ownership succession plan. We have a deep understanding that these transactions are rarely solely driven by economics, and that the ESOP is an important tool in (1) preserving culture and legacy; (2) rewarding loyal employees and retaining talent; and (3) attracting new talent. That understanding drives much of our ESOP practice, even when we do not represent selling shareholders.
However, we also represent existing ESOP-owned companies that are considering the merits of remaining an ESOP-owned company. Many times, these decisions are driven by repurchase obligations. Other times, the company's growth strategy is the driving force. Either way, we have represented a number of ESOP-owned companies in transactions whereby the ESOP is liquidated - either partially or wholly. In a number of instances, we have been very successful in helping ESOP-owned companies bring in a private equity partner, while maintaining the ESOP as a minority shareholder.
As an example, Benesch represented Bettcher Industries, Inc. in its sale to Morgenthaler Private Equity. Prior to that transaction, Bettcher had been a 30% ESOP, and eventually a 100% ESOP, both as a C-Corp and an S-Corp. As part of the transaction, we were able to keep the ESOP as a minority shareholder. This allowed all ESOP participants to diversify their ESOP holdings, and secure significant liquidity in their retirement accounts. However, it also preserved the ESOP culture, and kept the ESOP as a retention and recruitment tool. Since the acquisition, Bettcher has done a number of acquisitions (the ESOP was also attractive to potential sellers), and has added significant value through that process.
Buy-Side Transactions
Our "buy-side" practice is also a mix of ESOP-creation transactions and post-ESOP transactions. We have represented many ESOP trustees in a number of leveraged ESOP-formation transactions. Our knowledge of the fiduciary process that these trustees employee in those transactions is crucial to all other aspects of our ESOP practice. However, we also represent both private equity and strategic buyers looking to acquire ESOP-owned businesses. And again, we have been very successful in structuring deals where the ESOP continues as a minority shareholder.
Again, by way of example, Benesch represented Gridiron Capital in its acquisition of Remington Products Company. Unlike Bettcher, Remington was a mature, non-leveraged ESOP at the time of the sale. As a result, the structure of the transaction was different, but in the end, the ESOP was retained, and again, the participants received a liquidity event without having the ESOP terminated.
Ongoing Advisory Work
Benesch represents many ESOP-owned companies with respect to their day-to-day operations. This includes advice regarding administrative compliance, fiduciary governance advice, plan design work; management of distribution policies and repurchase obligations, and annual audit work. In addition, we counsel many of our client on their acquisitions, including the merger of ESOPs when the target is also an ESOP-owned company.
Dispute Resolution
Benesch has a longstanding history of representing our clients in all aspects of benefits and ESOP-related disputes. Often this occurs in the defense of routine regulatory investigations (DOL and IRS audits). However, we also have experience handling participants claims and litigation in the event that it occurs.
For example, recently, Benesch represented an ESOP-owned company in litigation regarding whether warrants were properly valued at the time of the initial transaction. While Benesch did not handle the transaction itself, we were engaged to represent the company in the dispute. From the company's perspective, the main issue in the case was whether the individual trustee would be indemnified to the extent the regulators were to obtain a judgment. The trustee's insurance carrier alleged that the trustee had not timely filed notice of a claim, and denied coverage. Ultimately, Benesch brokered a multi-party consent order to resolve the matter without ongoing litigation or significant damages.