Meeting
1: The initial education usually takes place in two meetings. The first is
with the original buyout leadership and includes:
An
explanation of the steps involved in doing a buyout and how Employee Stock Ownership
Plans work and are used to finance a buyout.
A
detailed discussion of the key factors which should be considered before employees
attempt a buyout as these factors pertain to specific circumstances of the plant
in questions.
A
decision as to whether there are any obvious reasons not to pursue the buyout
any further.
A
plan for the next steps and a meeting with the rest of the employees.
Meeting
2: The second meeting is a presentation to all of the employees who are willing
to attend. This meeting includes:
An
explanation of steps to a buyout and ESOPs.
A
presentation of the key factors which are important for a successful buyout and
the leadership's preliminary assessment of these key factors.
A
commitment on the part of a significant majority of those present to encourage
the buyout leadership to continue exploring the buyout.
If
the employees are not interested in a buyout, then it is unwise to proceed any
further.
Establish
a buyout association.
Membership in the buyout association is usually
open to all the potential future employee owners. A leadership is usually selected
to put the buyout together on behalf of the buyout association. Through its leadership,
the buyout association:
Raises
funds from members and solicits matching funds from government and other potential
contributors.
Contracts
with and oversees the work of legal and financial consultants.
Develops
a management team.
Do
a pre-feasibility assessment.
This assessment is a quick study by the
legal and financial consultants of the key factors needed for the buyout to succeed.
It should include:
Clarification
of the issue of the owner's willingness to sell.
An
evaluation of the company's historical financial performance.
Identification
of potential lenders and investors.
Identification
of the management team.
A
judgment about the industry and the company's future market.
Identification
of any obstacles which are likely to cause the buyout to fall. If such obstacles
exist, and the professional opinion is that they cannot be overcome, then the
buyout association should not continue to invest money, time and hope any further.
Conduct a feasibility
study.
A professionally done feasibility study provides an in-depth analysis
of the economic viability of the plant as an employee-owned company. This generally
requires five years of company financial data on the performance of the plant
in question, ascertaining the approximate value of plant and equipment, estimating
the size of liabilities that come with the plant, and market research.
Feasibility
studies can be done by local management (especially in small projects), business
analysts, investment bankers, and other outside consultants. Such studies typically
cost between $15,000 and $50,000, depending on the size of the project.
If the feasibility study
shows that there is no feasible way for an employee-owned succeed, then the buyout
association should cease pursuing the buyout.
If
there are any feasible ways for an employee-owned company to succeed, they should
be identified in the feasibility study. The buyout association should select the
most acceptable alternative. At this point the buyout association has most of
the information it needs to complete the following steps.
Develop
a Business Plan.
If the buyout association proceeds beyond the feasibility
study, it is because the study has explained how an employee-owned company can
succeed. This explanation with a little packaging thrown in is the business plan
which the buyout association will take to potential lenders and investors. The
business plan explains how the new company will generate the money to replay the
bank and reward the investors.
Negotiate
the purchase and create the structure for the new employee-owned company.
The feasibility study should provide the buyout association with a reasonable
estimate of the company's value as well as how much debt the new company will
be able to support. Negotiating the purchase may be very time consuming and expensive.
Typical legal costs vary dramatically depending on the complexity of the deal.
If
the buyout is a sale of stock, then the company creates an ESOP to purchase the
stock. If the buyout is a sale of assets, then a new company must be incorporated
with an ESOP. The ESOP purchases stock in the new company and the company uses
the proceeds to purchase the assets from the original company.
The
buyout association develops a governance structure for the employee-owned company
which will encourage all of the employee owners to contribute constructively and
cooperatively to their company's future success.
The
buyout association designs the Employee Stock Ownership Plan. A lawyer must be
hired to write the ESOP document but the cost will be less if the buyout association
already knows what it wants in the document.
Arrange
financing.
A feasibility study should identify the capital expenditures
and working capital needs of the company and these should be taken into account
when arranging financing in a addition to the agreed upon purchase price. The
financing may include equity or subordinate debt, senior debt, and working capital
financing. Generally this requires professional assistance by your lawyer, business
analyst or outside financial consultant. This can often be done on a contingency
basis.
Close
the deal with the seller.
This will require a lawyer for the paper work.
