Many American cities and communities have suffered as companies have relocated production facilities overseas or moved their management teams to large regional business hubs. In smaller industrial or agricultural cities, the loss of even one large employer can result in job cuts and serious financial consequences for the entire community. These cases are generally more likely to arise when business owners sell to a strategic or private equity (PE) buyer that isn’t committed to keeping the company in its original location.

A third option, known as an employee stock ownership plan (ESOP) represents an alternative way for owners to sell their business at fair market value, while limiting business relocation related concerns. ESOPs also offer flexibility in succession planning, allowing owners to maintain a certain level of influence over a company’s operations after a sale and continue to play an important role in the company’s post-transaction future.

Hypothetical Case Study: Mayfield Industries

Let’s imagine a company called Mayfield Industries—a profitable Midwestern business that manufactures equipment for use on dairy farms. The company has 3,000 employees and is one of the largest employers in its local market. Mayfield’s 65-year-old owner, John Mayfield, has spent 30 years building his business. John is preparing to retire, and he wants to pass his company on to his two sons. John also wants to remain an active and respected member of the local community after the sale. After all, this is where he has raised his family and made his home.

John has received indications of interest from private equity and strategic buyers and is weighing these offers with the alternative of selling the company to an ESOP. The best answer won’t depend solely on the financial terms of the options he is considering but will also depend on John’s principal motivations for selling his business.

Preserving Your Reputation in the Community

Imagine this scenario: After building his company—and his family’s reputation—in the local community for 30 years, John decides to sell to a strategic buyer. After the sale, the new owners insist John exit the company, eliminate a large number of jobs, and relocate the business to another area of the country. How might the local community’s regard for John and the Mayfield name change in this scenario?

By selling to an ESOP, however, John can limit the risk of this outcome and more directly control his legacy within the community. In fact, the community may come to regard Mayfield more highly still if the company performs well and the ESOP’s benefits for the company’s employees continue to grow over time.

An ESOP structure can incentivize a company’s employees to invest their best efforts into the business, because their retirement benefits become more valuable as the company grows. This increases the probability that the jobs and ancillary benefits that the business provides—such as local sponsorships and volunteer programs in the community—will endure as well.

Taking Care of Workers Who Helped Build Your Business

What is the best sale option if John’s primary motivation for it is to look after the workers who have helped build the company when he is gone? An ESOP passes ownership of a company to an employee trust intended to provide a meaningful retirement benefit to a company’s workforce. In other words, an ESOP can directly improve employees’ ability to build wealth, providing a potentially sizable retirement asset that is difficult to match through other means.

As we discussed in a recent whitepaper, for companies that perform particularly well after an ESOP sale, the structure can help break cycles of poverty and wealth inequality that have existed in a community for generations. This benefit makes the ESOP unique relative to other third-party buyers.

Continuing to Play an Active Role in Your Company’s Future 

In addition to supporting the company’s employees and the local community, an ESOP would preserve the Mayfield family’s reputation and could enable John to continue playing an active role in the company’s future. As a buyer, ESOPs provide significant flexibility to a seller who wishes to play an active role in the company’s operations and strategic direction post sale. Options include retaining a management position held before the transaction or transitioning focus to high level oversight often in a board chair role.

Post ESOP sale flexibility can provide business owners with the opportunity to gradually prepare and transition the company’s next generation of leadership. In addition, an ESOP may help the company to recruit and retain high-quality managers who will play a critical role in Mayfield’s future success.

Selling Your Company? Consider What’s Most Important

Many different motivations can come into play when deciding to sell your company. If you are primarily interested in maximizing cash proceeds at the time of sale and completely exiting the business shortly thereafter, then a sale to a strategic or financial buyer may be the best option. However, if you value factors such as the impact of a sale on your local community or the employees who have helped build your company—an ESOP may be a compelling alternative to consider.

For many business owners, determining the best exit strategy can be a complex and stressful challenge. ButcherJoseph can help owners work through the process and ensure that they understand the full range of options available.  Before starting any engagement we provide prospective clients with a feasibility analysis to help compare the potential outcomes of selling to an ESOP vs. selling to a traditional third-party buyer including both financial and non-financial considerations.

Contact us or me directly at or 561.290.1299 if you are interested in learning more about the exit path that is best for you and your company.