Selling to Your Employees: Ed Renenger on ESOPs as an Exit Strategy

[Stuart Brown] (0:07 - 0:16)
Welcome back to Open for Business, the podcast offering practical guidance and some humorous insights to business owners looking to optimize their professional and personal lives.

[Norman Kallen] (0:17 - 0:38)
I'm still Stuart Brown and I'm Norman Callan and although we're both lawyers, please don't hold that against us. So Stuart, today we have an interesting subject matter. It's employee stock ownership plans known as ESOPs.

You and I are very familiar with them. Times are changing and people are looking to alternatives besides the usual investments and usual exit strategies. What are your thoughts before we get started with our interview?

[Stuart Brown] (0:38 - 1:12)
Well, I have two thoughts. First of all, I brought my car in today for service and it shouldn't be $160 for an oil change, but that's beside the point. With respect to ESOPs though, which we're all becoming more familiar with as times change, I will tell you that and no offense to our guests who I'm going to introduce in a moment.

Years ago, first of all, I didn't understand them and I really tried to dissuade people from considering them. But as I became more and more enlightened, I now believe it is more than a viable alternative. It's a great possibility with respect to an exit strategy.

[Norman Kallen] (1:13 - 1:28)
Yeah, I think you really have to think about them and find out will they work for you as our guests will tell us. Sometimes the alternatives just aren't available or they're not the best alternative and I think that's what we'll explore today. So with that, Stuart, you want to introduce our guests today?

Sure.

[Stuart Brown] (1:28 - 2:02)
So I'm very happy today to tell everybody that we have Ed Reninger, who is the president and CEO of SES ESOP strategies, Ed advises business owners on how to sell their companies to employees through employee stock ownership plans, otherwise known as ESOPs. Helping companies evaluate feasibility, structure transaction, implement ESOPs, and navigate ongoing administration and compliance. Ed has spent his career helping business owners think strategically about succession planning, ownership transitions and preserving company legacies.

[Norman Kallen] (2:03 - 2:53)
And welcome to this show. Let me start out. Most business owners that we deal with have spent 20, 30 or 40 years building their companies.

When we start talking to them about succession planning, the conversation usually gravitates towards one of three possibilities, sell to a strategic buyer, sell to private equity, or transfer the business to the next generation. But sometimes those choices and alternatives don't work. Maybe the children aren't interested, maybe management doesn't have the money to buy the company, maybe private equity isn't interested, or maybe the owner isn't interested in private equity, and maybe there isn't a strategic buyer that will provide the right combination of price and terms.

So let's start with the alternative that many business owners have heard about, but really don't know much about what exactly is an ESOP and how can an owner's own employees effectively become the owners of the business.

[Ed Renenger] (2:53 - 4:53)
Yeah, great. Thanks for having me on, guys. I really appreciate the opportunity and you'll find probably as we talk about this that I can get a little passionate about ESOPs.

The reality is a lot of business owners may not be aware of this as a viable exit strategy, and they feel like they're only alternatives are the ones that you outlined. And what that does sometimes though is it doesn't let the owner actually focus on what their goals and objectives may be in transitioning their business. They may have been very involved with this business for decades.

It becomes in many ways a part of their family almost like there's this emotional connection with the business that they help grow. And when they feel like their alternatives to exit their business may not accomplish your goals and objectives that can leave them frustrated and floundering and very difficult. So what is an ESOP?

An ESOP is an alternative business transition that lets the owner accomplish some goals and objectives that they may not be able to accomplish in other types of transitions. And that's something I like to focus on when we're talking to our clients is trying to understand what their goals and objectives are. Because I think if I start there, I can more quickly determine whether an ESOP is a viable exit strategy for them and whether it may be a good fit for them to transition their business.

So what are the goals and objectives that work really well with an ESOP transaction as opposed to another type of transaction? The term I probably hear most often when I'm talking to my clients is something about legacy. That's a broad term.

It can cover a lot of different things. But my clients tend to use the term legacy when they're talking about making sure that the culture they've built over time stays, making sure that they provide a real value for their employees, making sure that the business can maybe stay in the community where it was established and where it grew, and making sure at the end of the day that their management team is also well taken care of. The broad set of values there that I described oftentimes are legacy drivers and why an owner may want to look at an ESOP as an alternative exit strategy than the three or four samples you mentioned earlier.

[Stuart Brown] (4:54 - 5:01)
At what point should business owners start thinking seriously about succession planning, potentially leading to an ESOP?

[Ed Renenger] (5:01 - 6:15)
My guess is my answer is probably going to be the same as any other business advisor who's talking about succession, which is the earlier you think about it, the better. That's the case candidly in almost any sort of a transition. The reality is the more planning you do ahead of time, the more value you're going to get out of your business from a liquidity standpoint, because you're going to be more focused on your management team, for example, you're going to be more focused on how you're cutting out waste and putting more money to the bottom line.

You're going to be more focused on culture and all of those things how make the business more valuable, whether it's a third-party buyer or an ESOP buyer. The other thing that you can do with more time is you can do more planning from a tax perspective. For example, you may choose to gift some of your shares a couple years in advance of any sort of a transaction, and an ESOP just like any other buyer can take advantage of those types of pre-transaction planning that you've done.

Earlier is always better. That said, Stu, I've had people call me and say, I want to get an ESOP transaction done. Six months later, we close the transaction.

It's definitely possible to do it on a very short time horizon, but the more time you have the more planning you can do and the more value you're going to bring to yourself and your business.

[Norman Kallen] (6:16 - 6:31)
That's a good point. When we talk with owners about potential sales, obviously timing is important and you need enough lead time. One of the reasons to maximize the value of the business is to make sure you're set up for a sale.

What makes a company a good ESOP candidate and conversely, what makes a company a bad ESOP candidate?

[Ed Renenger] (6:32 - 9:56)
That's a great question, Norm. What makes a good company an ESOP company at the end of the day? Before I answer that, let me talk very, very high level.

What is an ESOP? We've talked about it as an alternative transition mechanism, but I don't know if the listener really understands what an ESOP is. I think that will help understand what makes a good ESOP company versus not make a good ESOP company.

At its most fundamental level, what an ESOP is, is it's a retirement trust that by law must purchase stock of the company where the employees work. Rather than the business being owned by a third party, what happens is the business becomes owned by this retirement trust, and that creates a benefit for your employees. The employees work for a company where their own retirement plan owns the company.

That's what we mean by employee ownership a lot of times in the ESOP community. What makes a good ESOP company? What are some criteria that can make a good ESOP company?

Part of that is economic. I look at size, for example. I'm looking at number of employees.

I'm looking at the profitability of the business. That's one area. The other area I look at really is culture and goals and objectives of the owners.

I'll start at the size first. When I'm looking for a good fit from a size perspective, I usually have minimums. Like a size we don't want to go below.

I don't really have a maximum size. There are very, very large ESOP companies. For example, the company Publix, massive grocery store chain in the southeast, is 100% ESOP owned company.

And that works very, very well. Wawa, for those of you who live in the Wawa area, are very familiar with Wawa. And that is another very large ESOP owned company.

Those are just good examples of how large you can get. But when you look at the bottom of the spectrum, generally speaking, I'm focusing on two metrics, which is number of employees. And they're roughly, we say, 20 to 25 employees.

It's kind of the lower end of the threshold for viability, for being a good fit for an ESOP. And then from a profitability perspective, what we're usually looking at, it is a business that generates at least a million dollars a free cash flow on an annual basis. Because when you get below that, the cost complexity and hassle of setting it up and running the ESOP tend to make it not very viable.

So that's the size perspective. Right above that, we're usually a good fit. On the other side, when I'm looking at culture and I'm looking at owner's goals and objectives, the two things I tend to focus on are, one, is there a general culture where your employees and your management team and the ownership team are generally aligned?

If you have an environment where there's a lot of tension between rank and file employees and the management team, a lot of the benefits you're used to getting in an ESOP context, probably are not going to come to fruition. So that may be an impediment to having a successful ESOP culture. So culture is part of it.

And the other is really goals and objectives of the owners, which I know we touched on briefly earlier. But when we have an owner who is driven to maximize after tax proceeds, and I'll talk about what that means a little later on in this podcast, because there's some significant tax benefits that can come into play for sellers in an ESOP transaction. But putting that aside, an owner who is focused on legacy culture and wants to make sure that the business continues on, that they spent their decades building, that tends to make for a really good, successful ESOP transaction as well.

[Stuart Brown] (9:56 - 10:09)
Your answer raised another thousand questions in my mind. But the first one that I want to ask you is, can an ESOP work for a business owner who isn't quite ready to fully step away from the company yet?

[Ed Renenger] (10:10 - 11:51)
Well, I love that question, because it touches on what I would say are about a third of the transactions we work on every year. And just to give you a little sense there, Stu, my team, all we do is help business owners implement ESOP transactions. And I've got 25 people on my team working on that throughout the country day in and day out.

That's all that we do. So we see a lot of these transactions. And what that does is it gives us a really good window into understanding the ebbs and flows and what structures work for certain situations and what structures don't work for other types of situations.

And your question really highlights one large subset of our transactions. I would say about a third of the deals we work on every year, year in and year out, or what we call minority deals, a scenario where the ESOP is not the 100% owner. Instead, what we do is a structure where the seller is selling some of the equity to the ESOP.

Maybe it's 10%, maybe it's 20%, maybe it's 30%. There's no right or wrong answer. We have flexibility there and what the owner is trying to accomplish.

But what we're really doing is we're creating a structure that lets the owner maintain majority control, but pull some chips off the table in a very tax efficient manner. And in the process, create a very meaningful employee benefit for their employees. So that minority transaction, which as I said, is about a third of the transactions we work on every year, works really, really well for an owner who really isn't ready to give up control.

And that's not an uncommon thing, right? How often do you work with a business owner who emotionally is really involved in the business and is not ready to walk away? A minority ESOP transaction works really, really well in that situation.

[Norman Kallen] (11:52 - 12:02)
Let's flip to the other side of the equation, the employee side. What exactly does employee stock ownership look like? What does it mean?

Who gets what? And how do they monetize that value?

[Ed Renenger] (12:03 - 14:44)
Monetization is a key part of that. But before they can monetize anything, what do they get? What is this ESOP at the end of the day?

When we structure an ESOP transaction, what we're doing is we're transferring some or all, remember, we have flexibility there, but we're transferring some or all of the equity from the current ownership team to this newly created retirement trust. But the employees don't get all of that equity right out of the gate. What we do intentionally is we create a period of time over which those shares that the ESOP bot get allocated out to the employees.

And we're doing that over a longer period of time intentionally because we don't want to just dump a lot of value in one fell swoop down to your employees because it doesn't leak anymore to productivity. So what we do is we create this mechanism to slowly allocate those shares that the ESOP bot out to the employees over an extended period of time. And the way we normally do that is we allocate some shares every year in proportion to each employee's compensation.

So the more money someone earns, the more shares they get relative to people who are less and vice versa. So what we're doing is we're rewarding employees with shares in their ESOP accounts related to the compensation that they're earning on an annual basis. Over time, as they get more and more shares, they also get a statement every year that shows how valuable the shares are, right?

Because we're getting an appraisal done every year and it shows them what their vested percentage and their shares are. And what you start seeing over time from an employee perspective is the first year or two, they're like, what is this? I don't understand what this is.

It sounds like smoke and mirrors. It's not like a traditional 401k plan where I'm putting my own money in and it's being mentioned. I can invest it however I want.

Instead, I'm getting shares in the company. There may be some skepticism and some lack of understanding of how valuable this will be. But what happens, Norm is over time, as they get those statements, they start to see real value growing in their account.

Here's the beautiful thing both from an employee as well as from a company perspective. Once the employees start to understand that the value in their ESOP is correlated to the profits of the business, your employees start making more informed decisions on the margins. They get a little more efficient with reducing waste, recycling scrap, maybe not getting out in the warehouse in the forklift because that makes the tires last longer, right?

They start making better decisions. And those are real stories from clients I've worked with. Better decisions on the margins that lead to more profitability, which leads to higher value in the ESOP account.

It's a real thing. And at the end of the day, when the employee leaves and ultimately retires, then their shares get converted to liquidity and are able to then roll that over to an IRA.

[Stuart Brown] (14:45 - 14:56)
You used a word and a phrase that I want to make sure everybody understands. You talked about first an appraisal and then you talked about a vested percentage. Yeah.

Can you explain both of those for the listeners, please?

[Ed Renenger] (14:57 - 16:38)
Yeah, appraisal. So what is a business worth? Normally, when you sell to a third party, you know what a business is worth because you have a buyer who is negotiating with the seller to reach agreement on what the business is worth.

You see that when you buy and sell real estate all the time and you also see it when you buy and sell businesses. But when you have a business that's not being sold, how do you determine value? So what you do is you hire a third party independent appraiser to do an annual valuation of the business.

You might be familiar with it or your listeners might be familiar with this in the context of a state planning. You might get it appraised if you're going to gift some shares to a trust, for example. Same concept with an ESOP except we're not having similar estate discounts applied to it.

But that valuation, that appraisal that you're getting done on an annual basis, sets the market price for the ESOP. That's how employees know what their shares are with. It's how we know what we're going to pay employees when they ultimately leave.

So that's a key part of a successful ESOP company is getting that annual valuation done. And then when they leave, the reality is we're converting that to liquidity that's going to come from company cashflow at the end of the day. But very tax efficient cashflow, and I'll explain that a little later on, but that cashflow then supports paying out to the employees what they're getting.

But this is a retirement plan. And just like any other retirement plan, we're allowed to have rules and regulations over how quickly people get into the plan, who's eligible to participate, and what their vested percentages, if they leave, in other words, too early, they're not entitled to their entire account. They have to work there long enough to earn and become 100% vested in the value of their ESOP account.

You have the same concept a lot of times with matching contributions, for example, in a 401k plan. And we have that in ESOPs as well.

[Stuart Brown] (16:39 - 16:52)
So what happens if you have an employee who's been at the company for 20 plus years, and now the company implements an ESOP? They're still going to be subject to that vesting period. It's a choice.

[Ed Renenger] (16:52 - 17:17)
Maybe or maybe not, it's going to come up to the choice of the business owner when we're first setting that ESOP up over whether we want to start our service from day one, the day we start the ESOP or whether we want to go back in time and count the service that was there before we set the ESOP up. But that's a business decision. And we're very good at helping owners understand the pros and cons of making those decisions.

Among several other business decisions we have to make in the design of the ESOP when setting it up.

[Norman Kallen] (17:18 - 17:35)
So once the stock goes into the ESOP, Al then is a company managed. Who manages a company? How do you allocate, obviously you said based on compensation, but what kind of management plan do you have to have in place?

What kind of agreement do you have to have in place? How does it run post-owner selling?

[Ed Renenger] (17:36 - 17:48)
I appreciate the question, Norm, because I think one of the common misconceptions about ESOPs is that, well, if I put an ESOP in place, now all of a sudden the chickens are running at the head house, right? Let that be a choice.

[Norman Kallen] (17:48 - 17:49)
Exactly, right.

[Ed Renenger] (17:49 - 19:19)
Get to make all these decisions by democratic vote. But that is not the case. There's a couple key concepts to keep in mind there.

One is an ESOP company is still a company. It's still a company that has a board of directors and it still has a management team. The same exact structure you have running your business a day basically continues on after the ESOP is put in place.

Just because the employees are, quote, owners doesn't mean that they get to control operations. And in fact, legally, they don't own the stock directly. Remember, there's a retirement plan.

So the plan owns the stock and there's a trustee of this plan who has all the rights of voting and shareholders and things of that nature. The employees are just beneficiaries of their trust account in this ESOP. And so from that perspective, legally, they don't even have the rights of shareholders.

The only thing that you have to give your employee every year is a participant statement that shows the value of their shares and what their vested percentages, things like complete financial statements. The employees aren't even entitled to that. Now, some of our clients choose to share that information because again, remember, the more successful the business is, the more valuable the stock is.

And if you're trying to get people to understand that economic cycle, sharing some financial information may be helpful. But that's a choice, not a requirement. And so it's the management team that runs the company.

It's the board that oversees the management team and hires and fires the management team and focuses on management succession, not the employees. It's not a democratically run organization.

[Stuart Brown] (19:20 - 19:38)
Can we get granular for a second? You had mentioned before that the employees will receive shares allocated over time. But then you just said that the employees are not actually shareholders of the company.

So I'm easily confused. Can you clarify that for me? Yeah.

So a little nuance.

[Ed Renenger] (19:39 - 21:15)
So remember, an ESOP is a retirement plan. Every single retirement plan in the United States is effectively a trust. You have to have a trust setup for the benefit of whoever is in the plan.

So just like your 401K plan has a trust and a trusty, we do the same thing with an ESOP. So in an ESOP, it's a retirement plan. There is a trust setup and the trust holds the assets in the plan.

So the trust is a shareholder then. The trust is the shareholder, exactly. Great way to describe it.

So your employees, their participants in a retirement plan, there's rules around eligibility on who gets in, there's rules around investing. But all that means is they have an account setup in the plan and they're allocated in their account a certain number of shares every year. They don't own the shares directly.

They just have an economic right to the benefits of ownership. They don't have the rights of being an actual shareholder. There's very few things in it.

This is written into the internal revenue code that your employees are actually entitled to vote on and their material substantive organizational decisions, like selling substantially all of your assets are going into bankruptcy. For those things, plus a very, very small subset of others that don't really apply any ordinary course, your employees do have a right to vote. But outside of those very, very narrow things, that don't arise unless it's a transformational event, never arise in the ordinary course, your employees don't even have a right to tell the trusty how they want their shares voted in their accounts.

[Norman Kallen] (21:16 - 21:26)
So at Stewart's point, so the trusty stays in place as long as the shares are in the trust, and how long does that go out? It's as long as the company wants it to be.

[Ed Renenger] (21:26 - 21:52)
At the end of the day, ESOP is a type of ownership. I have one client that was formed as an ESOP company in 1974, and they're still an ESOP company. And their intention is to do it for another 50 years.

They have no intention of ever changing that. Now, the trustees may change over time. They may change.

The board may want to change from trustee A to trustee B or maybe it's a team of trustees that change over time. The ESOP stays in place if you wanted to.

[Norman Kallen] (21:53 - 22:19)
Can I go back, Stewart, for a second? I want to go back to the valuation issue, okay, because this is a good point. You get a third party valuation in the context of a sale to private equity or a strategic buyer.

You have the ability to negotiate the value of the company. Why would an owner pick an ESOP when you say, oh, here's a valuation trustee is going to live with it when you might get a better valuation in the context of negotiations with a private equity group or a strategic buyer?

[Ed Renenger] (22:20 - 25:00)
Excellent question, because I think that also touches on another myth that I think may be out there, which is, well, if we're just getting a valuation done, I'm leaving money on a table or I'm giving my business away without getting paid fair value. That is not the case in my experience. And for a couple of reasons, one is when we hire a trustee, they're truly a third party and we are negotiating with that trustee on an arm's length basis.

Part of my team's job is to make the case to the trustee on why we believe this business is worth X dollars or Y dollars. And we do our own independent analysis on every transaction we work on telling an owner what we think their business is worth in an ESOP transaction. In the vast majority of those, what we're doing is we're relying not just on the company's forward looking projections, which is a type of evaluation you can do called a discounted cash flow.

But we're also in many cases looking at what third party private equity firms are willing to pay for similar businesses. We have access in subscriptions to databases that have this information. And so we're really looking at what third party transactions transact for in the ordinary course.

And when we negotiate our transactions with our trustees, our goal is to get that value. It's not to say, hey, listen, we're going to take a 20 discount, right? Why would we enter into a negotiation with that as a mindset?

Now, what you don't get norm, and this is a really important piece, there's two things that you might get in a third party sale that you may not be able to take advantage of on an ESOP transaction. One is if the buyer is the type of buyer that is really more of a competitor or maybe even a roll up strategy in the private equity context, sometimes those buyers are going to have what they call synergies in the deal. What does that mean?

That really means they're firing your HR staff and your IT staff because they already have that built out and they don't need it anymore. You don't get that in an ESOP deal because in an ESOP transaction, you're running the business the same way after the transaction closed as you were running it before the transaction closed. So you don't get those synergistic values that you're going to get in those types of third party sales.

The other thing you can't get in an ESOP deal is in some third party transactions, you might get two or three buyers bidding against each other and driving the price up to maybe something that is different than what the market thought it might be worth before you got that competitive process. The ESOP is not a competitive process. Even though it's a negotiation and we're trying to get the value to where we believe a third party buyer would pay, you don't get that kind of competitive bidding back and forth that can bring some irrational exuberance maybe to the process.

So those are the two things where I'd say valuation may be different. But outside of that, our goal is to get full fair market value. We're not trying to leave money on the table here.

[Stuart Brown] (25:01 - 25:13)
That said, that's an important point. So SES ESOP strategies, correct me if I'm wrong, works for the business owner as well as the company when it comes to the valuation. That's right, Stu.

[Ed Renenger] (25:14 - 25:19)
Yeah, we're not working on behalf of the buyer, for example, the trustee. The trustee gets their own advisors.

[Stuart Brown] (25:19 - 25:25)
So you are trying to maximize value for the company slash owner. Here we are.

[Ed Renenger] (25:25 - 26:02)
Now, the other thing I'll say though, right, is most of the owners who work with us are not looking to do anything that's irrational, right? What they're trying to do is they're trying to do a transaction that's fair and creates a situation where the business can continue on from a legacy perspective. So for example, we don't want to put too much leverage on the company that it can't afford to continue its capital expenditures and continue to grow and continue to invest.

Because that's part of the reason a business owner cares about it. They want it to continue and they want it to be successful. So we're trying to find that balance that works for the owner from a value perspective.

But that also works for making sure the business is sustainable and can continue on.

[Stuart Brown] (26:03 - 26:11)
So you raised a really important point, which I don't want to skip over. You talked about leverage. How does leverage work in an ESOP transaction?

[Ed Renenger] (26:11 - 27:51)
Leverage for those of the listeners who aren't dealing with it every day is just a fancy turn for debt. When we say leverage, it's really how much debt are we putting on the company's balance sheet. And when we finance our ESOP transactions, one key difference in financing an ESOP transaction compared to a third party buyer is we're financing a hundred percent of the deal, whether it's a minority ESOP or a hundred percent transaction.

A hundred percent of the transaction is being financed with debt unless there happens to be some cash on the company's balance sheet that we can use to help pay for it. So it's a leveraged transaction. We're financing it with debt.

No one's coming in and writing a private equity check here. No one's coming in and bringing capital beyond debt. So it's all debt financed and it's financed effectively from banks.

We go to third party banks and we say, how much are you willing to lend? We do a negotiation there as well. We actually get several banks bidding against each other to try to get the best terms for the debt stack that we're going to be putting in place.

But at the end of the day, it's a cash flow alone. We're repaying that debt from future company cash flows. We're trying to size the debt relative to what the company can afford so that it can manage the debt in such a way that it's not over leveraged.

And that's all tied to value as well, right? So just playing with round numbers. If you have a business that has, say, a seven times EBITDA valuation for transaction purposes and we're able to generate maybe three turns of EBITDA from a senior lender, there's a gap there.

There's four turns in that transaction that we did in finance with cash at close. We usually finance that piece of it with seller debt so that they're taking back a note and getting paid after the bank gets repaid its debt from the initial slug of the transaction.

[Norman Kallen] (27:52 - 28:00)
In that situation, how is this seller secured to make sure they get paid? Because you're going to sit behind a bank and the uncomfortable feeling is I'll never get paid.

[Ed Renenger] (28:01 - 29:00)
Yeah. It's something we have to work through in every transaction. So what we normally do is we pay a rate of return on that seller subordinated debt that's commensurate with the risk they're taking.

So what we're usually negotiating in our deals is a combination for the seller of some cash pay interest plus some warrants. warrants are an equity instrument, effectively an option that gives the owner some upside on the growth of the business after the transaction closes and norm. When you look at the rate of return on the cash pay interest plus the rate of return that you get from that warrant, we're usually closing our transactions in today's interest rate environment at around a 12, maybe a 12 and a half percent internal rate of return on that seller debt.

So it is subordinated. It's behind the bank, but it gets a pretty good rate of return and candidly when you look at the total cash flows to a seller between cash at close plus the rate of return on the seller debt, it's a very attractive total return for an owner at the end of the day.

[Stuart Brown] (29:00 - 29:21)
All right. We're getting a little wonky here. Let's lighten the mood a little bit.

So you had spoken before Ed about how ESOPs actually improve employee retention, recruiting, company culture, performance, so on and so forth. Are there industries in which ESOPs seem to perform exceptionally well as opposed to others?

[Ed Renenger] (29:21 - 31:37)
When you look across all of the transactions throughout the country that are done year in and year out, generally speaking, you see some concentration in a variety of industries. There's like three or four of them that tend to see the highest concentration and those are architects and engineers. We see a lot of ESOP transactions in kind of the professional services space.

On the other hand, we also see a lot of ESOP transactions in manufacturing. If you think about it, that's fascinating, right? Because those are diametrically approached.

You've got manufacturing heavy, capital intensive. You need a lot of cash to keep the business running. You have a workforce that may not be the most educated.

And on the other hand, architects and engineers, you have some of the highest educated workforce, very low capital expenditures, your assets walk out the door every day, right? So what might look like radically different industries, and they are in many ways, are also two of the highest concentrations in ESOPs. Another one that we see a lot of is construction, both general contractors as well as specialty subcontractors.

We've closed over the last couple of years, a very large roofing company, a couple of very large concrete construction companies, close to a couple of very large general contractors. So construction, contracting, architects, engineers, manufacturing, transportation is one we see a fair amount of. You don't see a lot of new ones anymore, but there was a time where a lot of grocery stores were setting up ESOPs.

And there's a lot of grocery stores still out there that have ESOPs publics I mentioned already. Outside of that, there are some industries that I would say are late to the game that we haven't seen a lot of ESOP activity in, but I'm starting to see some activity, for example, doctors practices. Doctors' practices historically had to be owned by doctors and in private equity figured out that if you used a management services organization structure, you can still transition doctors' practices to private equity.

Now there seems to be a bit of a curve away from private equity in that space. I think a lot of those haven't worked out as the doctors hoped. And so we're doing a couple transactions right now in that space that we think will close successfully.

And I would anticipate that that might be the beginning of a trend. Another one that we've seen more recently pick up some steam are accounting firms. BDO did a very large ESOP transaction a couple years ago.

And there have been some regional players that have done ESOPs as well. A couple that are also 100% ESOP owned as well.

[Stuart Brown] (31:38 - 31:52)
Do professional practices like doctors and accountants and what have you have to be owned exclusively by the licensed professionals in the organization? Are they the only ones who can participate in the ESOP?

[Ed Renenger] (31:52 - 32:47)
Yeah. So the way we do it and get a little technical here, the way we do it is in an industry where there is a requirement that licensed professionals own the business. What we typically do is we'll have another entity that's formed.

And this, by the way, is the playbook that private equity created to facilitate these types of transactions. We'll create another entity that is the ESOP company. And that entity has a contractual relationship with the licensed entity where they provide all of the management services.

So all of the back office, all of the HR, all the IT, all of the billing, all of the collecting, all of the administrative work. And so the vast bulk of the value in the licensed entity via this MSO arrangement ends up in the ESOP owned entity. And that benefits all employees, not just the licensed professionals.

So that's the structure you put in place.

[Stuart Brown] (32:47 - 33:04)
Right. So MSO, for those who don't know what that is, is management services organization. Okay.

And I know the accounting firms have something called an alternative practice structure. We do a lot of that work. And so what you're describing is exactly what they do as well.

Exactly. That's interesting. Okay.

[Norman Kallen] (33:04 - 33:34)
Let me go and let me know if you have a real life story of you have a business owner who has options. He's talking to private equity or she's talking to private equity. She's talking to a strategic buyer, buyers.

And you come up and say, what about an ESOP? Have you thought about an ESOP? But the other two organizations provide better pricing.

Have you had a situation where notwithstanding the better pricing scenario, your owner has chosen to say, I'm going to go the ESOP route. Has that happened or has it not happened for whatever reasons?

[Ed Renenger] (33:35 - 38:02)
Yeah. I'll share a couple of stories with you here. First of all, that does come up sometimes, you know, the fact pattern you describe.

When that happens, though, what we always focus on is not top line pre-tax proceeds, which is what your LOI says with the third party buyer. What we do instead is we model out what it means on an after-tax basis for the owner. Because after-tax, it might be better to do an ESOP transaction.

It has a smaller top line number than it might be to do a higher top line number and pay tax on it. What do I mean by that? In an ESOP transaction, and this is unique.

It's something Congress created intentionally to encourage business owners to transition to ESOPs. There is the ability for the owner of a business when they sell to an ESOP to not pay capital gains tax on the sale of that business. I'm going to stop for a second, let that sink in, because it's remarkable.

It's really, really amazing. Every state with the exception of two follows that rule as well. If you sell to an ESOP and you take advantage of this rule, Congress put in place, you can effectively avoid paying depending upon the state you're in and what the taxation is in that state like New York, New Jersey, California, Massachusetts, very high tax jurisdictions.

Depending upon the state you're in, you could be saving anywhere from 21 to maybe 40 percent of your total proceeds because you're not paying tax on it. You may have two deals that top line look very different, but when you go down and you really look at the after-tax proceeds you're going to put in your pocket, they may not be that different anymore. That's one thing we always focus on first norm.

If it looks like they're different, let's really look at what it means at the end of the day. What are you really putting in your pocket? Even putting that aside, the reality is I have owners who are willing to do certain transactions for certain reasons because their goals and objectives may not be aligned with the goals and objectives of another type of transaction.

We can use terms sheet that you negotiate with the private equity firm to help show an ESOP trustee why they may not be looking at value the right way, right? I have a third party buyer willing to pay X. You should be willing to do the same thing.

A lot of times that can be a tool we can use to help drive up value in an ESOP negotiation. It's very rare for me to see a fact pattern where money is the reason why someone doesn't do an ESOP transaction. I want to share with you another real-life story that happened.

Now, this goes back several decades. I'm part of a large professional services firm that has an affiliated investment bank and all they do is sell businesses. Before we were really doing ESOP work, there was a client once upon a time.

Again, this goes back a long time, so 25 years, but there was a client who had this mindset that they were a manufacturer and the product was manufactured in Pennsylvania and their biggest competitor manufactured all their product overseas. This owner wanted the business to stay in the community. They wanted those jobs to stay in the community.

When we went out and we sold the business, at the end of the day, there were two competing offers, one from their biggest competitor and the owner knew exactly what would happen if he sold to them. He knew they were going to close the facility. He knew all the jobs were going to go overseas.

He knew his brand that he had spent decades building was going to be inferior. The other alternative was to sell to a private equity firm who contractually agreed that they would not sell the business for two years and that they would keep the plant open in that community for two years. The owner chose that deal and they also, in doing that, chose to get $10 million less proceeds in that transaction because of that contractual commitment.

You can guess what happened? Fast forward two and a half years. Private equity sold it to the same strategic buyer.

They pocketed to $10 million and the facility was closed. You can see what's going to happen. You know what's going to happen.

If an ESOP had been part of our toolkit at that point and had been a viable alternative, I can almost guarantee that we would have been able to get the same proceeds that they would have gotten from the private equity firm. I can't tell you what would have happened for sure. Would the business still be there?

I don't know, but it would at least have had a fighting chance. That's how an ESOP can accomplish goals and objectives. That's a real life example of had that really been something that the owner really was able to look at.

We might have been able to successfully accomplish all of his goals and objectives, not just for a little period of time.

[Stuart Brown] (38:03 - 38:20)
That's incredible, especially the $10 million that was left on the table. If I were a business owner today and I wanted to explore an ESOP, I know you've touched on it. What would be the first few steps that you would suggest that I, as the business owner, look at?

[Ed Renenger] (38:20 - 38:50)
What we always like to start with is to help the owner really understand what it means from a cash flow perspective. At the end of the day, owners, in my experience and left say, really been intentional about this, really don't have a good idea what their business is worth. They may have a sense from talking to their buddy at the club.

They might have a sense from talking to someone in a family who maybe was involved in the sale of a business, but they may not really have a good sense of what their business is worth.

[Stuart Brown] (38:50 - 38:55)
I'm not sure about that. Every business owner I know values their business at at least $100 million. Of course they do.

[Norman Kallen] (38:55 - 38:58)
You could save money on the valuation on the appraisals that you already know.

[Ed Renenger] (38:59 - 40:21)
That was easy. What we like to do first is tell the owner what we really think their business is worth. We look pretty closely at their own financial performance.

We look closely at what we're going to pay for that value because that's real. That's concrete. What that gives them is information that they can then use to talk to their wealth manager, that they can then understand whether that's enough liquidity for them to really have the lifestyle that they're hoping to have with their business.

We spend a lot of time. It's about a three-month process too that we work with the business owner to help them really understand the economics of the deal. What is my business worth?

When am I going to get paid? How much am I going to get paid? What does it mean from an after-tax perspective?

What does it mean from my business? We build out a full three-income statement model, income statement, cashless statement, balance sheets, projected out over a five to 10-year projection period so they can really see not only what it means to them personally, to their family, but also to their business and ultimately their employees at the end of the day. The hope is that we're giving them the blueprint that they can make an informed decision on whether an ESOP is a good fit for them and in B, they now have the plans, the blueprint for how to implement the transaction and how we structure the transaction to accomplish those goals and objectives.

[Stuart Brown] (40:21 - 40:33)
So SES ESOP strategies act as effectively the quarterback in that transaction. That's right. Who else is on the team?

Who else do you suggest that the business owner bring in and when?

[Ed Renenger] (40:33 - 42:26)
Yeah, timing matters on some of the stuff. So I'm glad you threw that out there for me to address, but bottom line is the team needs to be a team. And I'm guessing you get this on your podcast with any good advisor that is coming and talking about transitioning ownership.

You need to have a good team of advisors. So that involves us, right? Quarterbacking the deal, helping negotiate the transaction, but it also involves their accountant.

There's a lot of numbers moving around here. There's a lot of potential tax impact. So you need a good accounting firm in there who helps them understand the impact on all of that.

The owner needs a good wealth manager. They need someone who can help them think about their liquidity and what that needs to look like and how that's going to be managed. And maybe that means we put a pause on things because there can be some pre-transaction planning we can do to help mitigate negative tax impacts, right?

So sometimes we bring the team in and we start having these conversations and we say, you know what? It's better to put a pause on this and come back in a year so we can do some pre-transaction work. So that team, right?

And then, of course, there's going to be a lawyer involved and a legal team involved to make sure that we're documenting the transaction appropriately. So that's kind of the company side. And then you're negotiating to deal with the third party.

We're hiring a trustee. That trustee is going to have their own, the appraiser. That trustee is going to have their own legal counsel.

And then you have a lender in these deals, right? The lender bank is going to be involved in the transaction. They're going to have their own legal counsel.

So there's a lot of people involved to get the transaction across the finish line. But the key is making sure you have a good advisory team on the side of the company. And by the way, I cannot overstate how important this is.

You want to work with an ESOP advisor who does this on a regular and repeated basis. There are people that dabble in this space. It's a very nuanced body of law that's subject to both IRS and DOL oversight.

You want to make sure that your advisor team understands those rules.

[Norman Kallen] (42:26 - 43:03)
A couple of good points, particularly on the advisory side and having the right people in place, more so to qualify people in place. We have run across situations when, unfortunately, either business owners or other parties don't. And it's actually a more costly situation for them.

But we've been talking a lot about advantages of ESOPs. And as we all know, nothing in life is free. So I'd like you to touch on a couple of things.

One is, what are the disadvantages of an ESOP? How expensive is it? Because you're hiring all these people who is paying for them.

And what are the ongoing administrative costs, valuation, if I do share requests, what does that all mean to the employee? What does that all mean to the company and cash flow, et cetera?

[Ed Renenger] (43:03 - 47:33)
The things that are disadvantageous for an ESOP company or that you might look at as negative are a little surprising, I think, to some people when they first hear them. I'm going to touch on tax a little bit here because it has a remarkably big impact on lots of things when it comes to an ESOP company. I'm not talking about the owner's ability to defer taxes.

We've already talked about that. But I want to talk about from the company's perspective, a tax thing first. Most ESOP companies that we work with end up ultimately being S corporations.

Maybe not when we do the deal because there's tax reasons not to do it then. But at some point, they'll become S corporations. And the reason why is because when you have a 100% ESOP owned S corporation, you have created a 100% tax-free operating company.

Because the company doesn't pay tax in an S corp rather than the shareholder does. And when your shareholder, in this case, is a tax exempt retirement trust, AKA the ESOP, you don't have to pay any tax. So it's a really tax efficient operating structure.

When you have a 100% ESOP owned S corporation, you have created a 100% tax-free operating company. It effectively operates like it's a non-profit business that generates a significant amount of free cash flow on an annual basis. That lets you pay down your debt quickly.

That lets you reinvest in growth. That lets you buy other companies. It just really frees you up to operate the company more efficiently than your competitors.

But here's the disadvantage of that. And it sounds a little counterintuitive. That can also create, in some cases, a little bit of laziness in the management team.

Because you don't have that same competitive overhang, right? That drag on free cash flow that you have in a normal operating company. When most businesses are putting anywhere from 20% to 30% of their free cash flow set aside, maybe even 40% in some jurisdictions to pay taxes.

When you don't have that drag, the management team can get a little sloppy and lazy sometimes. So when you don't have a board that is really overseeing management to keep them sharp and on focus, what you can have sometimes is you get a little lazy. Maybe you're not as quick to adapt to your competitive situations.

Maybe you're not as quick to adapt to your own management succession. And I think ESOP companies, when you see them maturing after 20, 30 years, sometimes you see a little bit of that. So that's something to keep the eye on for those of you who are focused on it at the board level, making sure that you keep your management team sharp, focused, and really driving value at the end of the day.

So that's one thing. Another thing norm is ESOP companies, you've created a new complex ownership structure. It's a retirement plan.

It's subject to IRS and Department of Labor rules. Those rules are king. They're not intuitive in some cases.

And so there's complexity with managing that. You're sending statements out to your employees every year. You got to allocate shares.

You have to track investing. You have to pay people ultimately at the end of the day, which is a drag on cash. So not withstanding that you have more cash available, you have to think about using some of that to be able to pay back your employees when they ultimately retire.

So there's this whole administrative complexity that comes from having the ESOP in place due to that. Now it's manageable complexity, right? We talked about the cash benefits of not paying taxes, but you've got to do it.

You have to think about it and you have to be focused on that. So that's a real thing that takes three sources. It takes time and it takes energy.

The last thing you talked about is costs. What does it cost to set it up and run it? I would tell you in the ordinary course, closing an ESOP transaction costs about the same as it's going to cost if you hire an investment banker to sell your business.

In other words, the fees you would normally pay your investment banker out of the water flow plus the legal fees are probably going to be similar to what you're going to pay to set up an ESOP. The big difference is who's paying for it? Owners sometimes think that they're not paying for those fees when it just comes out of the proceeds at close, but they are.

It's coming out of the proceeds at close, right? So it's coming out of their pocket at the end of the day. In an ESOP transaction, it feels like it's coming out in a more concrete way because it literally the checks are being written by the company.

They're being written by the company for all the advisors that trusty the legal counsel are my team. All of that is coming out of the company cash flow. And so it can feel more concrete to the owner in those scenarios than it might in a third-party sale, but the total fees are about the same.

[Stuart Brown] (47:34 - 48:04)
Getting back to the team strategy again, SES ESOP strategies is the quarterback. And you mentioned a number of other practitioners who have to get involved like the trustee, like the valuation firm, like the bank. So if I'm a business owner, I don't know who trustees are.

I don't know who the valuation experts are. I may have a bank, but I don't know whether or not they do ESOP transactions. My banker may not be able to spell ESOP.

So how do we find those people? I'm the business owner. How do I find them?

It's simplest to hire me. We know them all.

[Norman Kallen] (48:04 - 48:07)
Thank you for that insight. I teed that up perfectly.

[Ed Renenger] (48:08 - 49:01)
Nice to. I mean, I see that a little tongue in cheek, right? But the reality is ESOPs are niche, right?

They're not widespread. A lot of people don't know about them, but that means the people who work in that environment know everyone who works in that environment. There's only about 300 new ESOPs that are being created every single year throughout the country.

So it's a lot of transactions, but it's not like private equity, right? Where you have thousands of deals going on. So we know each other well.

We know all the lenders. My competitors know all the lenders. People who work in this space on a regular basis, our job is to help the owner navigate this.

We know this complexity. I don't know how to manufacture widgets. I don't know how to prepare engineering drawings, but I know how to set up ESOP transactions.

And I know how to do that efficiently and successfully. So that's why you hire us, right? You hire us and our competitors to help you navigate that transaction and get it across the finish line.

[Stuart Brown] (49:01 - 49:08)
So to be more concrete, SESE sub strategies is going to recommend trustees and valuation firms and banks.

[Ed Renenger] (49:09 - 49:58)
Yep. And we're going to run a process to get you the best terms and conditions and make sure that who we're working with at the end of the day is a good fit for you because you're creating a relationship with them, right? You're going to be working with your lender, with your trustee for years down the road if we do this successfully.

So you can create a competitive environment for those professionals as well. It is. Yeah.

Not simply the buyer. That's right. Yeah.

We run a full RFP process when we hire the trustee. We send it out to several candidates. We go through interviews, we check references.

We do that, right? Because that's protective of the owner to make sure that they have a good process to hire a trustee. When it comes to banks, we're putting together a confidential financing memorandum.

We send it out to anywhere from five to 15. It depends on the industry and how difficult we think it will be to get financing. Send it out to several potential lenders to get them getting us the best terms and conditions and competing against each other.

[Norman Kallen] (49:59 - 50:23)
And I want to go back a minute to the employee, how they get their money out. We know how the seller gets its money out, whether it's in terms of the bank financing it, a portion of it, and then a seller note. At what point in time, or how does an employee say, how do I get my money?

Where does the cash come from to pay me out? And particularly if you whatever the reason is, but they want to get bought out at the same time. How does that actually happen?

[Ed Renenger] (50:23 - 52:38)
In the ESOP industry, we call this repurchase obligations. So RPO is the acronym we use in the ESOP industry. And it's really a shorthand for this requirement at the end of the day that your employees will leave.

You do need to pay them cash equal to the value of the stock they're getting from their ESOP, right? So how does that work? How do we pay it?

When do the employees get paid? The first thing to keep in mind is when someone is working for you, there's no cash payments that go to them. So no cash has to go to someone until they actually leave employment.

And then they can become entitled to benefits. And in that world norm, we break them into two groups who break your employees into two categories of people. One category are people who leave due to retirement, meaning over 65, death or disability, right?

Those are things that happen. Retirement, death and disability. For those people, the normal rule is we start paying them the year after they leave, and we pay them over a five year period of time.

So effectively, that gives the company about six years to fund the liquidity event for them over time. For everyone else, people who leave before retirement are not because of death or disability, the normal rule is we make them wait five full years after they leave employment. And then we start paying them over a five year period of time.

So you're funding that over a 10 year period of time. And Congress wrote those rules into the internal revenue code intentionally to give the businesses the ability to manage the liquidity needs on an efficient basis without overburdening the business. And so if you think about that, it's really not a big lift.

I mean, I don't want to minimize the cash that's needed. It's real, but it's not a big lift relative to say sale of your business. If you think about a business that's worth, say, seven times it's free cash flow and you're financing that with debt, you're going to pay that back in seven years.

So here we're talking about paying back only the employees who left over a five to 10 year period. So it's not that big of a burden. And for companies that aren't paying tax, effectively, what's happening is the federal government is picking up that check, right?

Because you don't have to spend the money and taxes. You can now spend some of that tax savings to now pay your employees as they need to get paid over time.

[Stuart Brown] (52:38 - 52:44)
I want to be clear. That's law. That's not an SES ESOP idea.

That's law. Right.

[Ed Renenger] (52:44 - 53:18)
You can pay it quicker. What I find is most of our clients, when we set up their ESOP, we do that rule, right? Because that's the longest by law you're allowed to pay people.

What I find though is as ESOP companies mature and they realize cash flow is manageable when it comes to this repurchase sliability, what they do is they may start paying more in lump sums. They may accelerate the timing rather than doing it over five years, because candidly they probably have the liquidity, but they might slow it down again if you get a big bubble, right? Maybe you get a group of people who are all retiring around the same time.

So you might want to slow it down again to help manage it. So you've got control over your cash flow and no scenarios.

[Norman Kallen] (53:19 - 53:25)
So if a company is not doing as well post ESOP, that gives you the option to lengthen those payments. It does.

[Ed Renenger] (53:26 - 53:41)
Also, keep in mind, your obligations, your RPO is tied to the value of the business. So if the company's not doing as well, it's stock value should be going down, right? So that should be correlated.

Your cash flow should be correlated to the value of the business, which is going to be correlated to what you need to pay out to your employees. It should all work in harmony.

[Stuart Brown] (53:42 - 54:00)
You also mentioned that the employee doesn't receive anything until a separation event occurs. So to be clear, when you have a corporation, they could potentially have distributions vis-a-vis dividends. But in an ESOP company, there are no dividends.

Is that correct?

[Ed Renenger] (54:01 - 54:16)
Yeah, most of our clients do not pay out dividends. Instead, what they do is they just keep the cash on the company balance sheet. They use that for operational purposes, for growth purposes, and use it for repurchase obligations when they arise.

They can pay dividends and some do, but it's not the norm.

[Stuart Brown] (54:17 - 54:38)
I want to go back to one point that we discussed before, and I apologize for taking us way back. You said that an ESOP can be 10, 20, 30, 40% of the total equity of a company. What happens if you have a less than 100% ESOP and then the owner who retained the balance of the equity wants to cash out?

[Ed Renenger] (54:39 - 55:32)
So in that scenario, what we've created is another alternative. So all of the normal alternatives that are always on the table in the ordinary course, selling to private equity, selling to a strategic intergenerational transfer to the next generation of the family, those are still on the table when you get to that point stew. But now you have a fourth option.

You can then sell the rest of your equity to the ESOP. So you can take your chips off the table in year one. You can then wait five years and take the rest of the chips off the table by selling the rest of the ESOP.

That's a common fact pattern for our clients. We probably do three or four transactions every year where it's what we call a second stage transaction where we had set up the minority ESOP three, four, five, six years ago, and now they're ready to sell the rest of the equity. So it's a very common one, but you don't have to do that.

We could sell the whole business to a third party. We could sell the rest of your ownership to your next generation. All that stuff is still on the table.

[Norman Kallen] (55:33 - 55:45)
When a business owner is trying to consider whether to use an ESOP or go with some of these other alternatives, what questions should they ask? And what do you think the biggest misconception that business owners have about ESOPs?

[Ed Renenger] (55:46 - 57:18)
Yeah, the first question I should ask is, what's Ed's phone number so I can give them a call? Another softball. I think the first question they should be asking is, what does it mean?

What's my business worth? When can I get paid? Do I need to do some stuff ahead of time to get ready for the sale?

The normal stuff that they should be asking in the ordinary course and any good advisor can help answer those questions for them. It doesn't have to be me. It could be even if it's not an ESOP option.

I mean, that's the same sort of stuff that they often are asking in any other sort of a business transition. The myths, I would say the biggest myth really, and we touched on it a little bit, really centers around value and what does it mean for me? This perception that I'm leaving money on the table if I do an ESOP or maybe it's too complicated.

That's just BS, right? The reality is, yeah, there's rules and regulations. But at the end of the day, all we're doing is we're selling your stock for value and I can model a cashless for you.

I can make it really complicated if I wanted to, but it doesn't need to be, right? The reality is you're selling your stock. So I tried to overcome some of those mythologies when I'm having those first conversations.

The other thing I'm doing is when I'm first talking to someone and I actually do mean this in all sincerity. If you don't know, if it's a good option, pick up the phone. I'm telling you in 15 minutes, I can answer these questions really, really easily.

I'm going to ask probative questions to understand your cash flows. I'm going to try to ask some probative questions to understand your ownership and what your goals and objectives are. I can tell you probably within 15 minutes, whether an ESOP is viable and whether it might be a good fit in light of your own goals and objectives in your own business profile.

[Stuart Brown] (57:19 - 57:38)
So Ed, as a final question, for business owners who have spent their lives, let's say building their company, what advice would you give them about balancing financial goals with the desire to protect our employees, continue the culture, create the legacy that we've discussed when it comes time to transition ownership?

[Ed Renenger] (57:39 - 58:55)
I really appreciate that because what it does is it lets me give a bit of an advertisement for the professionals who aren't on this podcast right now. What I have found, and this is over and over and over again, is if a business owner does not understand what liquidity they need to satisfy their financial objectives, they can't focus on anything else other than the top line number they might get from a buyer because they don't know what they need to put in their pocket to satisfy their financial goals. So I'm always recommending to our clients, have you done the modeling with a wealth advisor who can really help you understand what you need to satisfy your financial goals?

Because when you understand that, it removes this anxiety, this fear that they're not getting enough from their shoulders and it lets an owner think about the rest of the options and alternatives. And once you do that, what I find is that it's a really, really simple conversation because now they're like, I got my number, everything else is gravy. And usually there's a lot of gravy even in any soft transaction, right?

And it just makes for a very different type of a conversation. So I really encourage our clients to have nuanced and intelligent conversations with a good wealth advisor who can help them think through what their number needs to be.

[Norman Kallen] (58:55 - 59:16)
You know, sir, this has been a common theme, what I just said to us with almost every speaker we've had on this program regarding succession planning regarding options on how to exit your business, etc., is exactly what you just said. You really got to take your time, think this through, have the right people counsel you on making sure what the best alternative is for you and not simply maximizing the dollars and cents.

[Stuart Brown] (59:16 - 59:37)
That's exactly right, Norman. What we are trying to do is bring to our audience here at Open for Business questions, answers, and just get them thinking about what their alternatives are. So that was an excellent, excellent answer.

I do have one more question for you. If the business owner wants to get in touch with you, how do they do so? How do they get in touch with SESESOP strategies?

[Ed Renenger] (59:38 - 1:00:15)
My direct number, I'll give you that, is 610-478-2238. I love phone calls, no problems. I would also encourage them to go to our website, which is SESESOP.com.

So SESESOP.com. My whole team, everyone's contact information is up there, email addresses, phone numbers. We even have a contact us forum and you can read tons of case studies about SESOP transactions we've done and look at them by industry and think about whether that fact pattern that we described there is a similar fact pattern to what you might be dealing with.

It's a great source of information.

[Stuart Brown] (1:00:16 - 1:00:43)
That's terrific. Well, Ed, thank you very, very much. And thank you, listener, for joining us, for Open for Business.

If you've enjoyed today's episode, be sure to subscribe and leave us a review on the podcast platform of your choice. We'd also love to hear from you and we mean it. So please check out our website at stevenslee.com slash Open for Business where you can email us, listen to past podcasts and provide comments. Thank you very, very much.

[Norman Kallen] (1:00:43 - 1:00:46)
And thanks so much. This is a great interview. We appreciate your time.

[Ed Renenger] (1:00:46 - 1:00:48)
Thank you, Norm. Thank you, Stu. I appreciated it.