ESOP Trustees Put Their Trust in Us.

In advising ESOP trustees on transactions and valuation, we recognize that our trustee clients are held to the highest standard of care in fulfilling their fiduciary duty to the ESOP. We approach all of our ESOP work with this in mind, supporting ESOP trustees with vigorous, independent analysis.

  • ESOP stock valuations for annual plan administration
  • Fairness opinions for ESOP implementations and secondary stock purchases
  • Fairness opinions for plan terminations and ESOP company sales
  • Adequate consideration opinions for ESOP transactions
  • Initial valuations for transaction fiduciaries
  • Financial advisory services to trustees for company acquisitions and other transactions

ESOPs are a unique form of ownership, and they require special care. In many ways, an ESOP is a contradiction.  It combines a retirement plan designed for security with the risk of investing in the stock of a single, private company.

With the right care, an ESOP can provide life-changing benefits for employees, and a competitive advantage for a company.

What is different about valuing an ESOP company?

There are a number of important valuation factors that are unique to ESOPs.  Overlooking any of these can lead to material misstatements of value with serious consequences.

Slide Background
Regulatory and Legal Requirements

What is it

ESOPs fall under the regulatory requirements of both the Department of Labor (DOL) and the Internal Revenue Service (IRS).

There are certain explicit regulatory requirements with which an ESOP valuation must comply.  These involve concepts such as fair market value, adequate consideration, and prohibited transactions.

In addition, there are informal guidelines that regulatory agencies follow when auditing ESOP transactions and plans.   While typically not formally documented, the DOL has taken certain positions on ESOP valuation topics that it adheres to when auditing and investigating ESOP transactions and plans.

Why it matters

Running afoul of these written, and unwritten, rules, can have painful consequences to ESOP trustees, sponsor companies, and selling shareholders.  This is why  it is critically important that ESOP valuation experts stay abreast of the latest guidance coming from DOL investigations, court cases, and sharing of best practices among ESOP professionals.

How we do this well

We build on this experience by participating in important gatherings of the ESOP community throughout the year and across the country.  As members of the ESOP Association, NCEO, and OEOC, on average, someone from Adamy is participating in at least one ESOP event every six weeks.

We also have experience dealing directly with the DOL in supporting our ESOP trustee clients and sponsor companies with DOL audits and investigations.  We draw on this base of knowledge and industry best-practices to address the issues that are important to the DOL and reach a positive outcome for the ESOP.

We Understand the Technical Nuances of ESOP Valuation

What is it

Some of the unique characteristics of ESOP companies can have important impacts on the value of ESOP stock.

Examples of ESOP-specific valuation factors include:

  • ESOP retirement benefits expense
  • Repurchase obligation
  • Owner/former owner compensation
  • Control
  • ESOP-generated tax savings

Why it matters

In addition to regulatory and legal consequences, overlooking or misunderstanding these factors can lead to serious economic consequences for participants and the company.

Appropriate valuation of ESOP stock is important for reasons that go beyond mere compliance.  The valuation must match the economic reality of the company in order for ESOP ownership to remain in sustainable equilibrium.  When this equilibrium breaks, unintended consequences ensue.

How we do this well

Our ESOP valuation team is deeply engaged in the ESOP community.  We believe that direct engagement in the ESOP community is by far the most effective way to stay ahead of changes in the continuously evolving regulatory and legal landscape.  We have developed a deep base of experience by working with ESOP professionals across the country on a variety of different types of ESOP transactions.

ESOP Transaction Issues

What is it

When an ESOP buys stock from selling shareholders for the first time, or in a follow-on transaction, or when an ESOP is terminated or the sponsor company sold, an exhaustive process must be followed to ensure that the transaction is fair to the ESOP participants.

Why it matters

ESOP transactions can attract particular scrutiny from regulatory agencies and plaintiff’s attorneys representing participants.  This largely stems from the inherent conflicts of interest that arise when a qualified retirement plan is engaging in transactions with the plan sponsor company and its owners.

Because of the complexity that can often arise in an ESOP transaction, a high degree of care must be taken by the trustee and their valuation advisor along with legal counsel to ensure that the transaction is fair to the ESOP and meets strict federal regulatory requirements.

Top ESOP trustees are conscientious and diligent and rely on valuation advisors who follow an equally stringent process in determining fair market value and assessing the financial fairness of an ESOP transaction.

How we do this well

Deep Client Base

Because we work with over 60 ESOPs every year, we regularly work closely with a variety of trustees, ERISA attorneys, company advisors, and other ESOP professionals in addressing a wide range of unique ESOP valuation issues.  This frequent practice keeps us on the forefront of how unique ESOP valuation issues are best treated in the ESOP community.

Continuous Learning

We complement this experience with continuous learning through our active involvement in the ESOP community through seminars and conferences.  We find that this in-person participation in the ESOP community provides both formal continuing education in the form of conference content and invaluable informal sharing of best practices with the other professionals with whom we have built lasting relationships.

Technical Expertise

Through our extensive experience, we have developed best-in-class technical approaches to addressing important ESOP-specific valuation issues. We apply these approaches in addition to the robust process that underpins all of our valuations.

The Bottom Line

A reliable valuation opinion, backed by an institution steeped in ESOP expertise.