CSG in the News - Spring 2025

Major media outlets are increasingly highlighting the versatility of ESOP-led succession, exit, and shareholder liquidity strategies. Instead of the occasional "Employee Ownership 101" piece, more and more trusted publications are showcasing the utility of employee stock ownership plans for specific use cases. 

This spring, Barron's, the Journal of Accountancy, Thomas Reuters, and HVCAR Trends all sought out CSG's experts to provide nuanced ESOP perspectives for unique audiences. Read ahead for fresh ideas on employee ownership for wealth, accounting, tax, and construction professionals, and listen in on a lively conversation geared for all business owners, courtesy of The Inside BS Show.

Barron's Features Lawrence Kaplan

Why RIA Leaders Shouldn’t Overlook ESOPs as a Succession Strategy

The graying of middle-market company ownership—part of the ongoing “silver tsunami” of baby boomers reaching retirement age—has driven increased consideration of ESOP strategies. But there’s another factor at play: a growing disenchantment with private equity-backed M&A. In recent years, advisors have seen competitors accept robust private equity acquisition offers with significant cash at closing, only to find they weren’t prepared to surrender their businesses and their legacies.

One alternative to this scenario is a partial ESOP transaction. Here, a business owner initially sells a minority stake to an employee trust, allowing them to get capital out of their company without sacrificing their involvement. Selling shareholders can defer capital-gains taxes on their proceeds, and their companies can earn corporate deductions equivalent to the ESOP sale price. This strategy offers the best of both worlds: liquidity and continued leadership of a more efficient, still-independent company.

A partial ESOP sale can also serve as a catalyst for estate planning strategies to preserve wealth. An example would be a sole business owner selling a 49% stake to an employee stock ownership trust. To acquire those shares, the employee trust effectively borrows money from the company. The added leverage reduces the enterprise value of the transaction immediately post-transaction. That depressed valuation (along with standard discounts) creates tax-advantaged opportunities for the owner to sell or gift their retained equity to family members or trusts.

Kaplan's full article from Barron's Advisor is available here.

Thomson Reuters Features Andrew Nikolai

Leveraged ESOPs: Tax Advantages

Since the passage of the Employee Retirement Income Security Act of 1974 (ERISA), employee stock ownership plans (ESOPs) have been intertwined with the U.S. tax code. Subsequent legislation has expanded the modern ESOP’s value proposition, creating a unique benefit program with tax advantages for all stakeholders: shareholders, their companies, and employee owners.

As far as government incentives are concerned, employee stock ownership plans are a bit of a rarity. All three major ESOP stakeholder groups can access meaningful tax incentives when they take specific, intended actions. Multiparty alignment—reflected by the stability, productivity, and performance of an employee-owned company—enhances those benefits.

In a world of third-party and private equity sales, where one or multiple stakeholders generally get the short end of the stick, leveraged ESOPs stand out as compelling shareholder liquidity and business transition alternatives. Employee ownership is not always the right strategy, but in terms of tax efficiency, ESOP strategies are unparalleled. 

Nikolai's full article from Thomson Reuters' Practical Tax Strategies is available here.

Journal of Accountancy Quotes Michael Bannon

Employee Ownership and Taxes: Why Firms are Choosing ESOPs

Proponents also say the concept of employee ownership tends to better align individuals’ incentives with the firm’s.

"After the transaction, you still have your compensation model, of course, but it’s augmented by the fact that all partners, all staff, also have a singular vision," Bannon said. "Instead of battling over budget and dollars, you’re thinking about how, as a firm, do we optimize our return on investment for those dollars? … It ends up being a little bit of a mind shift for the partnership as well to look more toward long-term growth and to have everyone row together toward that."

ESOPs can also help solve succession challenges.

"It’s a liquidity strategy for those partners that are selling today. It’s also a succession plan for the future, rising partners, because they, as participants in that plan, will continue to allocate and build up stock over their careers within the firm," Bannon said.

For a firm with partners approaching retirement, an ESOP may provide an alternative to a sale. “It’s a good exercise to at least evaluate what an ESOP may or may not look like for your firm [and then] decide whether it’s a good fit,” Bannon said.

The complete article is available in the Journal of Accountancy.

HVACR Trends Interviews Andrew Nikolai

Is an ESOP A Growth Strategy for Your HVACR Business?

"Firms earning at least $3 million in adjusted EBITDA, with 20 or more full-time employees, are generally better suited for an ESOP sale. Companies of that size are more likely to secure favorable transaction financing, maximize the associated tax benefits, and support the costs of building and maintaining an employee stock ownership plan."

"Aside from that, think about HVACR companies that are attractive acquisition targets. Recurring revenue related to maintenance contracts or repeat orders helps drive higher valuations. Companies that have demonstrated resiliency in economic downturns are also better positioned."

"So obviously, it depends where companies in the industry sit, who they’re servicing, and who they’re selling into from the distributor perspective. But a lot of the underlying factors that draw interest from private equity and strategic buyers also align with good ESOP candidates."

"Beyond that, an owner’s motivation and their company’s long-term goals are critical elements to any transaction decision. If there’s no desire to perpetuate a business, shareholders should consider traditional M&A. But if legacy, autonomy, and employee well-being are motivating factors, an ESOP can be a powerful business succession and liquidity tool."

Nikolai's complete interview is available on HVACR Trends.

The Inside BS Show Interviews Andrew Nikolai

ESOPs: Understanding the Basics

"I'll quickly cover two misconceptions. First, companies are often concerned that employees will gain access to sensitive financial information once an ESOP is in place. That's generally not the case. An employee-owned business can choose to employ 'open book' management practices, but it's not a requirement."

"The second misconception relates to stock distribution and redemption. Business owners frequently ask, 'If I sell to an ESOP today, will all my employees get rich tomorrow, quit, and leave the company?' Once again, that's not the case."

"Plans are designed as a retirement benefit for employees. Stock is usually allocated over an extended period of time and subject to a vesting schedule."