2017 ESOP Association Technical Conference – Increased Regulatory Activity & Strong Transaction Market Prove to be Top of Mind Discussions
November 21, 2017 - By: SC&H Group
The SC&H Capital team recently attended the 2017 ESOP Association Technical Conference in Las Vegas and though the conference featured a hefty agenda, there were three consistent themes that stood out. The following is a recap of the three takeaways worth considering if your company is currently an ESOP or plans to convert to an ESOP in the future.
Continued High Level of Regulatory Activity from Department of Labor (DOL)
Increased tensions between ESOP trustees and the DOL continue as a result of ongoing audit and enforcement activity. DOL enforcement activity has resulted in 3 different settlement agreements in recent years with various ESOP trustees. These process agreements have been adopted as best practice by many trustees and are impacting how transactions are negotiated and documented to mitigate future regulatory risks associated with the DOL. Given the increase in complexity of processes as a result of the settlement agreements, reliance on an experienced ESOP advisor to keep you apprised of regulatory risks is more important than ever.
Increased Number of ESOP Transactions in 2017
Discussions throughout the conference and during panel sessions discussed an uptick in the number of ESOP transactions in 2017. The higher level of transaction activity is being driven by many factors including:
- Current strength of market valuations
- Strong economy and resulting increases in companies’ financial performance
- Availability of low cost of senior financing in the credit markets
- Increased level of interest from alternative sources of financing for leveraged ESOP transactions (Mezzanine, Unitranch and Private Equity)
M&A Activity for ESOP Companies
Multiple sessions shared insights regarding the process of evaluating offers from prospective buyers, as well as ESOP companies considering acquisitions. Given the current strength and level of activity of the M&A market, many ESOP companies are routinely being approached by strategic buyers or are considering making material acquisitions. M&A transactions give rise to various fiduciary issues that ESOP trustees and Board of Directors should consider. For example, how should a Board or ESOP trustee evaluate incoming offers to acquire an ESOP owned company? How and when should an ESOP trustee be involved in a material acquisition by a plan sponsor? Having guidelines and/or a process in place to address these common M&A related issues is in the best interest of all parties.
A common theme remains apparent among all of the conference takeaways. Regulatory risk and market activity create the need for ESOP companies to partner with a business advisor who can help them navigate these hurdles.
SC&H Capital has dedicated ESOP experts on staff to assist with the formation, termination, and administration of ESOPs. In addition to providing a variety of professional services to ESOP plan sponsors, SC&H is also a 100% employee-owned company. As a result, SC&H professionals have a deep understanding of the unique challenges and opportunities that come along with running an ESOP company. Contact us today if you have questions about how to navigate the challenges and opportunities in the market today.