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ESOPs

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Financial Sponsors

CSG Partners advises private equity and mezzanine investors on using ESOPs as an exit strategy for portfolio companies, and as a way to enhance new leveraged buyouts. When advising financial sponsors, we perform detailed analytics on potential ESOP transactions, with comparative cash flow and IRR analyses versus alternative strategies. The analytics provide financial sponsors with a clear idea of whether an ESOP strategy is appropriate. Once the decision has been made to move forward, our transaction team handles the entire ESOP process to ensure the optimal results are achieved.

Exit Strategy

An ESOP can be an effective liquidity strategy when there is not an immediate, attractive M&A offer for a portfolio company. Waiting for market interest impacts IRR and performance fees, creates financial uncertainty, and allows income taxes to consume cash flows. With an ESOP, the financial sponsor can:

Create a buyer for the portfolio company
Sell some or all of its ownership
Be paid fair market value, and
Substantially reduce or eliminate the portfolio company’s taxes, thereby increasing free cash flow and debt amortization


Enhancing New Investments

Financial sponsors can also combine an ESOP with an LBO to enhance returns and reduce risk. By incorporating an ESOP, the financial sponsor can:

Substantially reduce or eliminate the target company’s taxes
Increase IRR and decrease payback risk
Make the buyout offer more attractive to owners of target company, because selling owners can sometimes defer or eliminate capital gains taxes on sale
Incentivize management and employees via the ESOP

 

 

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Securities, mezzanine debt and equity are offered by Synergy Capital I LLC, a wholly owned subsidiary of CSG Partners. Synergy Capital I LLC is a member of FINRA and SIPC.