Employee Stock Ownership Plans
If you look at transaction section at a certain firm, and find a majority of their recent deals to be on "Employee Stock Ownership Plans", what do you make out of it?
What does that mean that they had "Employee Stock Ownership Plans" deals.
and if analysts are involved in a lot of those kind of deals, are the experience considered as good as M&A? What about exit oppt.?
Thanks in advance.
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ESOP deals usually takes the form of a leveraged recapitalization resulting in the purchase of newly issued or outstanding stock (with or w/o debt) for the benefit of employees in the ESOP plan. There are multiple tax benefits associated with these types of structures and the sponsor company bears no liabilities since they are set up as defined contribution plans, unlike most pension plans that are defined benefit plans which obligate the sponsor to put up cash for unfunded post-retirement benefits as is the case with Ford and GM.
As an analyst, depending on which side of the deal you're on (fiduciary, special committee, or the ESOP) you'll be valuing the business to determine the fair value of shares to be purchased (or sold by ESOP), which can become a very sensitive issue because ERISA and the department of labor have stringent standards for determining the value of stock in a tax advantaged ESOP structure. But you'll definitely get the valuation and traditional deal structuring skills if you're staffed on these types of deals.