Please see the complete descriptions of our ESOP & Employee Benefits services below:
Employee Stock Ownership Plans (ESOPs)
ESOP Feasibility Valuation
Business owners and ESOP Committees considering an ESOP first want to know the estimated range of value for the stock interest the ESOP proposes to acquire. ComStock Advisors performs valuation methods appropriate for the individual company in order to determine the likely range of values the seller(s) can receive for either their minority or control interest in a sale to an ESOP.
ESOP Feasibility Study
This analysis takes the range of value determined in the Feasibility Valuation and performs analyses to inform the ESOP Committee as to the feasibility of the ESOP stock acquisition. Debt coverage, collateral availability for the ESOP loan, post-transaction value, and the impact of the transaction on the sponsoring employer balance sheet are a few of the items that can be examined.
ESOP Implementation
If the company desires to sponsor an ESOP and the plan is financially feasible, the ESOP installation is performed. ComStock Advisors can assist with assembling the necessary team of professionals to install the ESOP. Teams typically include the ESOP Trustee, financial advisor, legal counsel, plan administrator, and lender.
As financial advisor, ComStock Advisors will render an opinion to the ESOP Trustee as to the fair market value of the shares of stock that the ESOP is acquiring. This valuation must be determined as of the closing date of the transaction.
Typically a preliminary valuation is performed and this analysis is updated at closing. ComStock Advisors renders an opinion as to whether the price an ESOP is paying for the stock is or is not in excess of fair market value of shares acquired. In some transactions, the Trustee of the ESOP may also request that a fairness opinion be provided in addition to a valuation opinion.
ESOP Debt Placement
When an ESOP makes use of debt to acquire shares, this is called a leveraged ESOP. Normally, the company will borrow money either from a bank, mezzanine lender, selling stockholder, or other source of credit, and will then lend this money to the ESOP Trust. The ESOP Trust will use the proceeds from the loan to purchase stock from either the company or an existing stockholder.
ComStock Advisors has worked with many lenders and can assist you in obtaining the financing needed to execute the transaction and can assist in negotiating the interest rate and terms of the loan.
ESOP Fairness Opinion
In many transactions an opinion is provided to the ESOP Trustee as to whether the transaction is fair to the ESOP from a financial perspective. This opinion not only takes into consideration the fair market value of the stock, but looks at other potential issues of fairness. Examples of other issues include the pricing of debt, the impact of stock options and other forms of synthetic equity, whether employment and non-compete agreements are market-related, and whether the transaction is fair on a relative basis, as compared to other transactions that have or are expected to occur.
ESOP Second-Stage Transactions
There are unique tax benefits available to ESOPs which own 100% of the shares in the sponsoring company, especially if the sponsoring employer is organized as an S corporation. In many cases, ESOPs take more than one transaction to achieve this degree of ownership. ComStock Advisors performs valuations of companies that take two or more stages to achieve controlling or 100% ESOP ownership. One of the complexities that must be analyzed in second-stage transactions is how the additional debt affects the value of the existing ESOP shares.
Regular ESOP Plan Administration Valuations
At the end of each plan year, or more often if the ESOP Trustee prefers, a valuation is performed to value the shares owned by the ESOP. These valuations are performed for ESOP plan administration purposes. The ESOP provides participants with a statement at least annually and the company or the ESOP Trust may buy shares from participants based on the price determined in the plan administration valuation.
Financial Advisor to ESOP Trustee
ComStock Advisors is often retained by ESOP Trustees seeking financial advice. Some examples of this include:
- A trustee whose sponsoring employer is considering a large capital project or acquisition and needs to understand how the proposed activity will impact the ability of the sponsoring company to invest and grow, service debt, and meet repurchase obligations.
- A trustee may seek financial advice on the reasonableness of incentive compensation for executives. Trustees often want to understand the potentially dilutive impact of incentive compensation plans on the sponsoring company’s share price.
- A trustee will want to ensure that an ESOP has the financial resources to provide for the repurchase of terminating participant shares. ComStock Advisors provides insight into the cash flow of the sponsoring company, which in combination with a repurchase liability study, can be used to gauge its capability to fund its repurchase obligations.
ESOP Appraisal Review
The scope of ComStock Advisors’ review process includes examining appraisals prepared by other valuation firms to assist the trustee in determining the reasonableness of the existing appraisal report and analyses. The content of the appraisal report is examined to assess its consistency with industry appraisal practices. The valuation methods employed are examined for appropriateness and correct application, and the reasonableness of the assumptions made and conclusions reached in the appraisal are judged. Significant errors or omissions are identified.
ESOP Sale or Termination Opinions
Boards of directors sometimes decide that remaining independent is not in the best interest of the sponsoring company’s shareholders, and that the sale of business assets or the company’s stock is appropriate. ComStock Advisors examines the fair market value of the assets or stock sold in the proposed transaction to determine the reasonableness of the price. We can also evaluate the consideration to be received in the transaction if it is not paid in cash. ComStock Advisors can provide an opinion as to whether the transaction is fair to the ESOP participants from a financial point of view.
ESOP Disputes
ComStock Advisors’ ESOP experts are retained by trustees, sponsoring companies, plan participants, and government agencies or their counsel in the event that a valuation related issue results in a dispute or litigation. ComStock Advisors’ experts provide consulting services, business valuations, appraisal reviews, and if necessary, deposition and court testimony.
Employee Benefit Plans
Incentive Stock Option Plans
Incentive Stock Option Plans, or ISOs, are used to provide an additional incentive to employees. Rather than providing annual cash payments, ISOs provide incentives for employees to grow shareholder value as the payoff is created when the sponsoring company’s stock price increases.
ComStock Advisors can be retained to provide advice regarding the valuation impact of an ISO Plan. Our services also help the company determine the estimated volatility of the options and determine the impact of key variables, such as the number of options to be issued, the term of the option, and the strike (or exercise) price. We can advise the company as to the potential value of the benefit granted to the employees receiving the options, and the value implications from changes in the key assumptions.
Profit Sharing Plans
Profit sharing plans that hold employer stock and have no public market for the shares require a valuation. ComStock Advisors performs such appraisals using valuation methods appropriate to the circumstance.
Warrants, Stock Appreciation Rights, & other Equity Based Compensation
Sponsors of these plans require valuation advice when the plans are created, and periodically thereafter, to determine the fair market value of the financial instruments. ComStock Advisors provides valuations of equity and equity-like securities for both qualified and non-qualified employee benefit plans.
IRC 83(b) Election
A restricted stock award is a grant of company stock in which the recipient’s rights in the stock are restricted until the shares vest. Normally, the employee receiving the stock award is not taxed until the stock becomes vested, unless a special tax 83(b) tax election is made by the employee. Employees that make the special tax election claim the fair market value of the stock at the time of the grant minus the amount paid for the shares, if any, as part of their income. This election is often considered to be attractive in the case of a new company, or a company with a low value that is expected to grow, so that the employee can get capital gain treatment on most of the stock’s appreciation. ComStock Advisors can assist with determining the fair market value of the stock in connection with this special tax election.