OEOC
The 27th Annual Ohio Employee Ownership Conference
“Employee Ownership: Building Jobs, Wealth & Communities”
Emerging Trends in ESOPs:
Acquisitions & Divestitures &
Current Market Conditions
David Engel,
Brian Bornino, CPA/ABV,
Phillip DeDominicis
Robert E. Brown, Esq.
Director of Corporate
Transactions
CFA, CBA
Director of Valuation Services
Managing Director
Investment Banking
Partner
Discussion Topics
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Acquisitions – steps in the transaction
Valuation/Fairness/Price
Your ESOP as an acquisition tool
The affect on ESOP participants
Participant communications
Divestitures
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Steps in the Transaction
• Who identifies the target? Board? Management? Trustee?
• What do we need to do to get to a Letter of Intent? What due
diligence/negotiations take place before the Letter of Intent?
• What due diligence/negotiations take place after the letter of
intent?
• When/how do we arrange our financing?
• What is a "Definitive Agreement" and how do we get there?
• Who needs to approve the deal? Do the ESOP participants
get to vote? (state law, ESOP document) Should we pass the
vote through even if it's not required? How much information
do we need to give participants?
• Do you need an independent trustee?
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Valuation/Fairness/Price
• How will an acquisition and potential acquisition debt affect our
ESOP value? Can I minimize any adverse effects by working with my
valuation advisor?
• When should the ESOP trustee be involved?
• I know that my ESOP can't pay more than "fair market value" for
company stock. Can my ESOP-owned company pay a higher
strategic price for another company if it makes business sense?
• Are these acquisitions covered by ERISA rules?
• Do we need a valuation or a fairness opinion? Who can give these
opinions? Our ESOP valuation firm?
• Should the seller expect to be paid for normalization adjustments
like key owner salaries of the target company?
• Should the seller expect to be paid for the synergies that will come
from the combination?
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Can Our ESOP Be an Effective Acquisition Tool?
• How can the ESOP create tax benefits that lower the
purchase price and/or the cost of financing?
• What valuation or dilution issues arise if an ESOP is
used to help with an acquisition?
• Who would give the valuation/fairness opinions? Can
our ESOP valuation firm do it?
• Can using the ESOP conserve corporate cash?
• If the ESOP has cash, can it use the cash for the
purchase?
• Is the transaction structure any different from a
straight purchase?
• Do you need an independent trustee?
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How Does an Acquisition Affect the
ESOP/Participants?
• Is there dilution? Does the dilution affect value of the
participants' accounts?
• Will the new employees participate in the ESOP? How does
this figure into the negotiations?
• Is there a change in repurchase liability?
• Does it make any difference what percentage of our company
the ESOP owns?
• Do we need (may we use) "floor pricing" to protect some or
all of the participants?
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HR Issues Post Acquisition
• How do you manage cultural differences in
ownership? (e.g. Employee Ownership vs. Other
Types of Ownership)
• How do you introduce the new employees to the
ESOP?
• What if the new employees are not ESOP
participants?
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Are Divestitures Different?
• Who decides to divest a business line?
Board? Management? Trustee?
• Does it make any difference what percentage of our company the
ESOP owns?
• Who needs to approve the deal? Do the ESOP participants get to
vote? (state law, ESOP document) Should we pass the vote through
even if it's not required? How much information do we need to
give participants?
• Do you need an independent trustee?
• Who determines if the sale price to adequate? Can our ESOP
valuation firm help?
• What to we do with the sale proceeds?
• What happens to the ESOP accounts of the participants of the
business that was sold?
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Speaker Biographies
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David Engel
Director of Corporate Transactions
As a Director in ComStock Advisors’ Newport, Kentucky (Cincinnati metro area) office, Dave brings
more than 25 years of corporate transaction and financial advisory experience to clients’ business
challenges. He has an extensive background in developing, defining, and executing M&A
strategies, ownership transition of privately owned businesses, corporate divestitures (including
carve-outs), management buy-outs, recapitalizations, and capital formation, and applies his
leadership and financial expertise to the firm’s Corporate Transactions and other practice areas.
Dave has a proven record of leading senior management teams in the development of innovative
business solutions, e.g., spearheading corporate reorganizations, developing restructure plans,
negotiating distribution channel agreements, and advising business owners on succession
planning. His experience spans numerous industries, including manufacturing, distribution,
technology, software, consumer products, business services, insurance, oil field services, and
heavy construction.
1 Levee Way, Suite 3109
Newport, KY 41071
phone 859.957.2300 x27
fax 859.957.2305
dengel@comstockadvisors.com
www.comstockadvisors.com
Dave earned a Bachelor of Science in Accounting from Miami University and an MBA in
Finance/Economics from Xavier University. He is a member of The Association for Corporate
Growth (ACG) and has spoken before various academic, professional, and economic development
organizations.
Brian Bornino
Director of Valuation Services
GBQ Consulting LLC
230 West Street, Suite 700
Columbus, OH 43215
P (614) 947-5212
F (614) 947-5412
BBornino@gbq.com
www.gbqconsulting.com
Brian is the Director of Valuation Services for GBQ
Consulting, a 16-person valuation practice with offices in
Columbus, Indianapolis, Cincinnati, Philadelphia, and New
York. Brian has been involved in over 1,500 valuation
engagements during the course of his career, including
over 500 ESOP-related assignments. Brian’s valuation
practice specializes in ESOP formations, valuations, and
consulting, as well as valuations for various other reasons
including corporate and shareholder planning, mergers
and acquisitions, and various others. Brian has been
active within The ESOP Association for 15+ years and is a
frequent speaker on valuation, finance, and ESOP-related
issues. Brian earned his undergraduate degree from Ohio
University and his MBA from Case Western Reserve.
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Phillip DeDominicis
Managing Director, Investment Banking
For the last nine years, Phil DeDominicis has been the senior East Coast partner of
Menke & Associates, focusing on ownership transition through ESOPs and sales of
companies. For 23 years, he has advised companies on both the buy-side and sellside ranging in value from $1 million to $1 billion. He is also an expert on raising
private financings, both debt and equity.
Prior to joining Menke where he specializes in the installation of new ESOPs and
advising ESOP-owned companies on merger and acquisition transactions, Mr.
DeDominicis spent three years as a Director of Investment Banking in the Mergers &
Acquisitions Group of Citigroup, focusing on change of control advisory assignments
to middle-market companies. Prior to that, Mr. DeDominicis spent ten years as a
Director of Investment Banking in the Mergers, Acquisitions & Private Finance Group
and the Distressed Trading Group of Morgan Stanley.
Menke & Associates, Inc.
1605 Town Point Road
Chesapeake City, MD 21915
p 410-885-2531
f 866-209-7244
www.menke.com
Mr. DeDominicis received his degree in Chemical Engineering from the University of
Delaware in 1985, and his MBA in Finance from the Anderson Graduate School of
Management at UCLA on 1989. He is series 3, 7 and 63 registered with the National
Association of Securities Dealers.
He is an active member in and speaker for the ESOP Association, the National Center
for Employee Ownership (NCEO) and the Ohio Employee Ownership Center.
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Rob Brown
Partner
ESOP Plus®
250 Mill Street
Rochester, NY 14614
585-512-3414 x 8122
cell: 585-489-7272
rbrown@ESOPPlus.com
www.ESOPPlus.com
Rob is a founding partner in ESOP Plus®: Schatz Brown Glassman Kossow, a boutique,
middle market law firm that concentrates on ESOPs and employee ownership. Rob
has practiced tax law, corporate finance law and employee benefits law for many years.
In addition to speaking for the Ohio Employee Ownership Center, Rob often speaks
about ESOP related issues and in has spoken about many tax, corporate, business and
estate tax issues for national, regional and local meetings of other organizations such
as The ESOP Association, the National Center for Employee Ownership, the former
National Tax Association – Tax Institute of America and the New York University Annual
Institute of Federal Taxation.
Rob has published articles about ESOPs for several annual issues of the New York
University Review of Employee Benefits and Executive Compensation and has authored
other articles and reports on business and tax issues in connection with The New York
University Institute on Federal Taxation and the Executive Committee of the New York
Sate Bar Association Tax Section.
Rob was a Founding Member and Director, Vice-President and President of the New
York Employee Benefit Conference. He is also a member of the Alliance of Merger &
Acquisition Advisors. He is a member of the Executive Committee of the New York
State Bar Association Tax Section and a member of The ESOP Association's Legislative
and Regulatory Committee.
Rob is listed in The Best Lawyers in America, is a Top 50 Upstate New York Super
Lawyer and has a "Preeminent” Martindale-Hubbell rating in ESOPs and Employee
Ownership Law. Rob is on The ESOP Association's Legislative and Regulatory
Committee.
Rob is a graduate of Oberlin College (cum laude) and Yale Law School
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