One of the most common questions we hear at Executive Financial Services is: How do I know if my company is a good candidate for an ESOP? In the video link below, EFS President Kelly Finnell shares insights gathered from decades of experience working with business owners across the country. Often, the strongest ESOP candidates are those who want to cash in on their life’s work—but without selling to a competitor or private equity group. They want to protect their legacy, their employees, and the culture they’ve built.
ESOP candidates frequently express discomfort with traditional sale options. Many have worked with investment bankers or private equity firms and walked away feeling that their employees or values would be sacrificed in the process. One client said, “I don’t want to repay loyalty with betrayal,” reflecting a sentiment shared by many founders who view selling to a third party as abandoning their team. Others want to preserve a multi-generational family name or avoid the typical “mergers and executions” model, where culture and headcount are often the first casualties.
In addition to mindset, there are financial metrics that make a company a strong ESOP candidate. These include: at least $2 million in adjusted EBITDA, $2 million in payroll (excluding the owner and family), and a low-debt, high-profit business model. Perhaps most important, though, is the owner’s motivation. ESOPs are ideal for leaders who value more than just the final sale price. As Kelly explains, “You don’t have to be Mother Teresa—but you can’t be Gordon Gekko either.” If you care about your people, your culture, and your legacy, an ESOP may be the right path.
