CSG in the News - Summer 2024

For years, the construction industry has embraced employee stock ownership plans as succession and shareholder liquidity strategies. The same goes for professional services firms, although there's been a notable surge in interest among CPA firms in recent months.

Major publications representing both industries featured CSG's experts in their coverage of ESOP trends. Read ahead for their insights in articles and interviews from AZRE, Accounting Today, BenefitsPRO, and Construction Business Owner.

Accounting Today Interviews Michael Bannon

All About ESOPs

"Accounting firms are increasingly trying to find a new model to align interests across partnership groups. And so, if you have younger partners and senior partners, how do you incentivize those younger partners? If you're selling some of the equity off, you could do it in stages, but you could also structure an employee stock ownership plan and create unique equity pools for those younger partners and additional staff."

"Most CPA compensation models are heavily based on productivity. With an ESOP, you can keep the same compensation formula and enhance it by providing broader equity opportunities. And that encourages everyone to row in the same direction."

"It's a pretty progressive way to think about compensation over the long term."

Michael Bannon's complete interview is available on Accounting Today.

BenefitsPRO Interviews Alex Mumblat

Employee Stock Ownership Plans: A Q&A with Alex Mumblat

"A company's HR team is often involved in the ESOP formation process. They can play a meaningful role in calibrating plan design vis-à-vis a company's broader benefits offerings. Initial plan communications, including formal transaction announcements and the dissemination of summary plan descriptions (SPD), are usually coordinated by these same professionals."

"Post-closing, the HR team's role is two-fold. There is a technical side that includes interfacing with the ESOP's third-party administrator (TPA). A TPA must receive correct census data in a timely manner in order to prepare annual plan participant statements."

"Secondarily, HR professionals can help foster the cultural elements of an ESOP. That includes providing employee education, promoting plan benefits, and fielding questions about various plan features. Team members should also monitor the plan's adoption and related performance metrics. These may include employee awareness, comprehension, and the plan's efficacy as a motivational and retention tool. Plans can be modified from time to time, and a tuned-in HR team can significantly enhance that process."

Alex Mumblat's complete interview is available on BenefitsPRO.

AZRE Quotes George Thacker

Why More Construction Companies are Transitioning to Employee-Owned Businesses

ESOP plans are a great option for owners who are contemplating stepping back from the company. In the construction industry, internal buyouts have been historically popular, but Thacker says that route has drawbacks. "The problem is that the company is generating all this taxable income," he says. "You have to make tax distributions, then you’re using after-tax distributions to pay out [the owner], who then has to pay taxes again. Internal buyouts hemorrhage cashflow from a tax standpoint."

Other options for employee-owned businesses, such as an outside acquisition, can lead to layoffs and a dramatic break from how the previous owner operated the company. "As one client put it, ESOPs allow for a soft landing," Thacker explains. "[The owner] has oftentimes built up the business, and it has their name on the building. With an ESOP, most of the time selling owners stay involved in the business for a period of time."

Transitioning to employee-owned businesses, Thacker continues, also provides liquidity and diversification, along with potentially turning the business into a tax-free entity. "It’s an alignment of interests between the management team, the company, and employees," he says. "Everyone is rowing in the same direction."

The complete article is available on AZ Big Media.

Construction Business Owner Features David Blauzvern

ESOP: An Independent Alternative to Mergers & Acquisitions

Private equity and publicly traded companies continue to drive construction mergers and acquisitions (M&A), according to PwC. Although transaction volume has softened in the past year, built environment firms continue to trade in historically high numbers. It’s fair to assume that the number of privately held firms will decline again in the year ahead.

Fair compensation for a lifetime’s work is critical, but a liquidity event shouldn’t obligate a founder or shareholder to surrender their values. Third-party sales are solid strategies for those seeking to monetize, cut ties, and never look back. Owners who prize autonomy and have strong loyalties to employees and relatives in the business should aspire to something more.

There are middle-market construction firms nationwide with proven records, eager next-generation management, and owners who would love to see their businesses perpetuate. For these companies, employee stock ownership plans (ESOPs) are compelling M&A alternatives.

David Blauzvern's complete article is available on Construction Business Owner.