Demystifying the Employee Stock Ownership Plan (ESOP)

I'm Kisam Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals today. I'm here with Richard Harmon, currently Managing Director at CSG Partners. He's led a diverse career as a cpa, cfo, an entrepreneur, and now as an investment banker for the nation's leading leveraged ESOP practice. He joined CSG in 2011 and has led transactions for a range of privately owned middle market businesses. Today we're going to demystify ESOPs and get a real understanding of how they can harvest equity, enhance liquidity and create tax advantages. How are you doing today, Richard?

Good morning, Kisan, how are you?

Doing great. Can we kick off with just a brief explanation of what an ESOP is?

Absolutely, Kisan. An ESOP stands for Employee Stock Ownership Plan and it's one of the retirement plans created by erisa back in 74. It was created alongside IRAS and 401ks. People are generally more familiar with them and it has really unique features. In this case, the owner sells shares to a retirement trust for the employees who are allocated the shares over time and then at some point in the future they get to sell the shares back, put the money into their own 401k plan, or just use it for retirement.

So who buys these ESOPs?

Any business owner can create a retirement trust and there's a trustee, ideally an institutional trustee, who has been empowered by Congress to pay no more than fair market value for the shares. We'll get into a little bit of the history of ESOPs later, but the concept is that America's capitalist country, how do we create more capitalists? How do we inspire owners to share equity with employees? And over a long period of time, they came up with this concept of an ESOP where an owner could sell shares to the esop, get some liquidity on a tax enhanced basis, and that the employees would have a chance to actually own equity in the enterprise.

Who sets the price?

The price is set kind of on an annual basis. Initially, there's an independent valuation. The trustee hires its own independent valuation firm and they use all the normal methodologies, discounted cash flow. They can find private comps or public comps. They have to discount them down a little bit because they're private middle market sales and they come up with a value range for the company. And then, you know, part of our job is we make an offer to sell shares to the retirement trust. The Trustee counters. So we go back and forth, you know, multiple times until we hit at a fair price.

How does this get funded?

The funding? Great question. You know, when you're selling company fair market value is usually in a range of, let's say four times to ten times if you have a financial buyer versus a strategic buyer. And banks, senior lenders, major money center banks are generally willing to lend, let's say three, three and a half times your EBITDA to help fund an ESOP transaction. But you're selling at four to 10 times. So there's usually a seller note component. And of course the owner who has some seller notes sits behind the bank tax advantages of putting an ESOP in place. The outside debt gets paid down largely with or entirely with pre tax dollars.

Who gets the shares?

The shares get allocated to the employees each year. So let's say we sold $10 million of shares to a retirement trust. Well, the owner gets 10 million. Maybe they don't get it all up front, but they get a chunk at closing and then they have some seller notes. The esop now owes $10 million for those shares. It doesn't have any money to pay the company back for the $10 million investment. So there's an internal loan. And how it gets paid down is each year the company makes a contribution to the esop. The ESOP hands it back in payment of the seller notes, which is amortizing over 20, 25, 30 years. And the employees each year get allocated that pool of shares based on their W2 salaries. So if somebody's making 100 grand, they'll get allocated four times the shares of somebody making 25,000. And the longer they stay, the more shares they're allocated. And invests like a 401k. Usually use years 2 through 6, 20% per year.

How do employees redeem shares?

It's a retirement plan governed by the DOL, the IRS and all the rules laid out in ERISA, the Employee Retirement Income Services act of 1974. So it's very specific how the the employees get to sell their shares. In the ESOPs that we do, it's always the retirement trust that owns the shares. The employees get their statements annually. They have the economic benefits and rights to those benefits, but they actually never own the shares. And there's a bunch of reasons for that. The key reason is 100% S Corp ESOP. If all of a sudden a bunch of employees were allocated actual shares, then you would lose that magical tax status. So the upshot is, is when they turn 55 they get to sell 25% of their shares back at fair market value and put that money in their 401k, keep growing it. At 60, they get that other 25% opportunity. And then at 65, they get to sell the rest of their shares. Over a five year period, the company makes a market for the shares. There's that annual fair market value that's determined by an independent valuation each year. That's how that process happens.

Interesting. How long has the concept been around and when did ESOPs as they exist today, come to being?

It's actually a great story. So back in the 50s, actually 57, there's this attorney, Louis Kelso, and he had seen the Communist Manifesto and was of course probably semi rabidly anti communist, and he came up with the Capitalist Manifesto. He actually wrote a book called the Capitalist Manifesto. And there he discusses a lot of the concepts that led to creating the first esop. He said, America is a capitalist society. As in most of the world, 1% of the population owns pretty much everything else. How do we create more capitalists? How do we inspire an owner to share equity with the employees? And he literally was able to put in place the first ESOP in the country. And over time, he ended up working with Huey Long, who was the head of the Senate Finance Committee, chairman of the Senate Finance Committee, and they were able to include ESOPs in the 74 ERISA legislation. And how Lewis came up with the idea of sharing or inspiring owners to share equity of the employees is he had a couple of concepts. He said, well, we have to make it more lucrative for the owner to sell to the retirement plan versus a third party. So the first thing they did was they made the whole transaction deductible. So if you sold 10 million of shares to the retirement trust, the company would get $10 million of deductions. That was in 74. And then in 84, it turned out that Huey Long was still the chairman of the Senate Finance Committee. And they expanded. They said, we need more reasons for an owner to sell. And they created something called a 1042 rollover. So now when the owner received their $10 million, they get to defer all their capital gains. It's called a 1042 rollover. So they have a year after the transaction to reinvest in other things. So then that was a huge benefit. And then we fast Forward again from 74 all the way to 1998. You always had to be a C corporation when you did an ESOP. And that was great. You know, you sell $10 million of shares to the ESOP. The C Corp gets $10 million of deductions over a period of time. But then the company is a taxpaying C Corp again. And once again, Congress was taking up the charge, how do we inspire owners to share equity with employees? And they allowed S Corp. ESOPs in 1998. And so you had a bunch of C Corp. ESOPs. Let's say that $10 million company was making 2 million net income and paying a million in taxes. Well, they were able to check a box and elect s Corp status. January 199, company became tax free in perpetuity. At that point, the IRS was a little bit apoplectic because Kisan, if you own a company, you know, making 2 million a year, paying a million taxes, I own a similar competitor and I'm making 2 million a year, but I get my entire 2 million of cash flow without having to pay quarterly estimates. It kind of sets up an unfair advantage. But even after congressional hearings, Congress has stood up for these 100% S Corp ESOPs. And we've had them in place now for just over 20 years. So it gets a little bit better than that. In 2004, the IRS came up with, you know, I know I'm in the weeds here, something called REG 409P, which allowed an owner to have synthetic equity in an S Corp ESOP. So they said that you could own up to 49% stock appreciation rights, warrants, options inside an S Corp ESOP. And in and around that stew of tax benefits, it really turns into a powerful incentive for the owner to sell those shares and create that retirement benefit for their employees.

Wow. What does the landscape look like today for ESOPs? Like, how many companies are actually putting this in play?

Yeah, there's a great article Back in, in 2013, New York Times, and they said, wow, with all the baby boomer retirements, there should be 300,000 ESOPs a year. At CSD, our founding partner said to me, he goes, richard, if there were 10,000, the IRS would probably change the tax laws. So there are A little over 7,000 ESOPs in the US today covers about 10 million employees, well over a trillion dollars in assets. There have been as many as 11,000. When a company becomes an ESOP, they don't always stay in ESOP. Five, ten years later, if they sell to somebody else, all the employees get the benefit much more quickly and company goes back to a different structure. So right now we've got about 7,000 and a lot of people just, they don't understand the details. They don't take the time to look deeply as an esop, as a liquidity or exit strategy. And that's part of our job. Part of the reason I'm so pleased to be on the call with you today.

How did you first get acquainted with ESOPs?

That's a great question too. So I joke. I call myself a recovering cpa. I started out in public accounting in California back in. Wow, 78, 79. Have been a CPA for a long time. Although I haven't practiced public accounting since the 80s along that food chain. Back around 2007, 2008, I picked up an assignment serving as a part time CFO for a $50 million revenue ESOP owned manufacturing company. Look, I'm a CPA. I know something about ESOPs, but I had no idea how powerful they were. As a function of my work as the CFO of that company, I became acquainted with the founder of CSG and transitioned to my investment banking role in 2011.

Wow. Why do firms consider ESOPs?

You know, again, we like to think of an ESOP as a tax enhanced leverage buyout of your own business. Yes, it's a retirement plan, but it's also a corporate finance transaction. So what we do is we give the owner optics. We say, oh, you're considering this third party sale, you're going to sell at five times EBITDA. Five times 2 million, $10 million. Guess what, if you're in California, a third of that's going to disappear for capital gains taxes. You know, to keep it simple, do the same transaction, sell it five times. With the ESOP, you get to deploy the entire 10 million, save 3.3 million in capital gains taxes. So what we find almost always is the tax benefits that Congress has put in place to inspire this behavior results in about a two turn benefit versus a normal outright sale situation. The owner ends up with more after tax cash to bring it all home.

Yeah, sounds like a great benefit. What are the other benefits of an esop?

Well, I think one of the key benefits is you align your workforce. All the employees. You know, I have one client and he sends out a call every year and he's trading, you know, his fair value multiples about eight times. So he'll say to the guy in the mailroom, figure out how to cut expenses, $1,000 in shipping. Or he'll say to somebody else, figure out how to increase our gross margins a little bit and guess What? You create $1,000 of savings. You've just effectively generated 8,000 more equity, multiply that times 200 people and you get the idea of how powerful it can be over time to create value on an enterprise level. So the actual statistics are that ESOP companies, they lay off less at a recession and they grow about 3% faster than their peers. So you can use that communications piece to inspire your team. So basically everybody's paddling in the same direction. Everybody knows that they have some great upside in the long term. And every year they get a statement that shows how that really translates into their own situation.

Yeah, I like that employee ownership culture. It really makes a lot of sense.

That's probably the key benefit. I love it. You know, I was at a client in Jacksonville in January when they were doing the ESOP rollout and people were howling and screaming, I'm an owner. It was just really something. It does take a while for the value to grow in the employees accounts. First couple years, three to five years, the company's paying off the price of the shares, but after that it really becomes meaningful.

Can you tell me like what control looks like in esop?

Initially, when you have putting an ESOP in place, you have an independent trustee and that trustee is the buyer and they're charged by Congress with paying no more than fair market value. There's a lot of belt and suspenders that goes into that to make sure that they're not paying more than fair market value, because if they pay more than fair market value, they're taking advantage of the employee. So there's a tremendous amount of work that goes into that process. But post esop, the trustee generally doesn't have a seat on the board. They'll make sure that there's an independent presence on the board, but it's usually never the ESOP trustee. So each year the board will tee up a slate of directors and recommend to the trustee how to vote for the board. And if they end up in a big arm wrestling contest, the board can always replace the trustee. The key issue here is that when they came up with the whole concept, I haven't met an owner yet. Well, that's not true. I've met one or two owners who have always embraced employee culture so broadly that they were sharing the company financial statements with everybody every month. But 95 out of 100 owners, if they're going to have to share control in a meaningful way, they're not going to do the transaction. They're going to say, either I'm going to be able to continue managing the company, or maybe I'll just sell to a third party. There's a really fine line balance in control, but basically the board that's in control at the time of the transaction stays in control as long as they like.

Do you have valuation requirements? Do you have to do annual valuations or something?

Yes, that's one of the issues with an esop. Once you put an ESOP in place every year, you've got three parties involved that you're not paying today. One is the independent trustee, institutional trustee. Second is a valuation firm. Each year there's an independent valuation and they take the results of that valuation, they hand it to a third party administration firm. Think of like a payroll firm, except for their only job is to create the statements for each employee. And those statements every year that they get say, here's how many shares you've been allocated, here's how many shares you're vested in. Again, they vest years two through six, 20% a year. Typically there's a couple of other options and then here's the value of your shares. That's all they see. They don't even know the total shares outstanding, so they don't even have a sense of the enterprise value, but they can see their accounts. I've had employees come up a year after an ESOP and say, Richard, you know, I got my first statement, there wasn't much there and I said, yeah, because the company's paying down all the debt to acquire the shares for you which are going to be allocated to you over time. I said, give it three, four, five years. And then, you know, four or five years later, same person came back up to me and says, oh my gosh, I'm loving my ESOP statements. So that's how it works. You have this annual valuation, you have a third party administration firm, you have an independent trustee, you end up paying, I don't know, 30, $50,000 in maintenance expenses. And usually the company needs to be reviewed or audited. If you're not doing that now, that's another cost.

Where's like the size when it starts actually making sense?

In our experience, I love to see somebody paying a million or more in taxes. So about 2 million, 2 and a half million, EBITDA and above. We do transactions as small as enterprise value, ranging from 8 million, as high as a billion and a half. That's a huge range. If somebody's making less than let's say a million and a half, 2 million a year in EBITDA. Chances are the weight of the expenses to maintain the esop make it a less interesting scenario.

What does liquidity look like for the employee? Are they able to sell stocks whenever they want?

It's very specific, their opportunity to sell shares again. If they've been in the plan 10 years, they turn 55, they can shell a portion of their shares, the company will make a market at that year's fair value, and then the employee can take that money, put it in their own IRA or 401k account and keep growing it, keep growing it on a deferred basis. And when they finally pull the money out of their retirement fund, then they pay ordinary income on it. They never had to pay for the shares, so they pay on the other end, but they pay on appreciated earnings ideally.

Gotcha. Tell me, what does the typical client look like for you?

Our typical client, probably 20, 25 or more employees. I did one a couple years ago, 18,000 employees. I'm working on one right now that does a couple of million timesheets. But they have a lot of temporary staff. A typical client is someone who's kind of matured to the point that got a CFO controller in place, they've gone through all that kind of early stage mishegoss that people have difficulty navigating through and they become a good tax paying citizen, you know, to the annoyance usually of the owner who's writing out those quarterly estimates. So if somebody's paying again a million or more in taxes, it's a good conversation to have. There are some other things that I didn't mention earlier. When they approve these S Corp ESOPs, I kind of touched on the fact the company became tax free in perpetuity. But what that does when you still own a piece of the company in the form of warrants are like really magnifies your ability to get another bite of the apple. If you're the selling shareholders in the.

Outer years, how do people get started setting up an esop?

How our process unfolds is the first thing we do is a lot of times I'll have formal conversation with the owner, get a sense of the revenues, how profitable they are, the industry and the like. And if it makes sense, then I'll suggest that they allow us to do an analysis to give them their optics into the future. You know, if they do an esop, we'll show them an ideal leveraged, optimized ESOP versus just continuing to run their company as it is versus selling to a third party. And if they think that's a good idea, then we'll get engaged to do an analysis. We charge a little bit of money for that. It's always a lost leader for us. Then immediately we set up a data room, we collect five years of historical financial information, a current tax return and projections, and then we go to town and do an analysis. Takes us about three weeks or so. At the end of that point, we meet with the owner and we're able to detail for them what their future looks like if they continue operating as they are in a growth, flat or down case they sold to a third party. What does it really mean for them on an after tax basis versus a leveraged optimized esop. And we find in almost every circumstance that the leveraged optimized ESOP leads to a lot more after tax, cash flow and abundance for the selling shareholder.

Okay, so we sit down, do analysis, lay out the different structures and scenarios. You got me sold. Richard. I'm ready to move forward and I want to take this and actually put it in play. What are the steps that entails to get us there?

So what we'll do is we charge a little bit of money for the analysis. We want to make sure that the owner has a little money on the line, but we put a lot of resources into that initial analysis. So we'll sign an engagement letter, an NDA, we'll ask you for five years of tax return, sorry, five years of financial statements, a current tax return and some projections. And we set up a secure data room. Once you provide the information, there's other questions as well about makeup of your employees. And like, you know, we do a certain amount of due diligence, then we complete our analysis. Takes us about three weeks or so. Then we sit down with the owner and give them the optics into what their options are. And if they find our presentation inspiring, at that point we'll engage in what we call stage two. And at that point we'll sit down with them, have an additional due diligence meeting. We'll ask much deeper questions. We'll build a financial memorandum that incorporates all their financial history, that tells the story of their origin through what the future of their business is. We'll create that financial memorandum and then we'll go to the market and start raising capital. And again, usually we're successful raising three, three and a half times ebitda, no personal guarantees. I'd say our track record of raising capital for the owners to take off the table with no personal guarantees is unmatched. Also at that point, that's when there's independent process that goes on with the owner's legal counsel, a non owner employee group, a committee who Will then interview all the trustees and select a trustee. And at that point we have a trustee due diligence meeting. I just had one last week. It was fascinating. You know, if you got 10 people in the room. I've got legal counsel for the company, legal counsel for the trustee, of course, the trustee, the valuation firm, our team as well. And they will do a deep dive due diligence process. Three or four weeks after that the valuation firm has completed their work and then they're whisper into the owner. Sorry. Into the trustees ear evaluation range. And at that point we start engaging in the actual negotiation. So the whole process takes about four to six months. And the good news is the tax benefits put in place by Congress to encourage this behavior pretty much pay for the entire transaction. Sometimes leave extra money in the owner's hands above and beyond.

And then you close on this.

Then we have a closing. Just like you would have a closing. Have a transaction right now. We've been working on. It's a large transaction been working on since February and supposed to close on Halloween. There's a couple of little minor dotting, some eyes crossing, some T's that's going to take place. So it's probably going to close tomorrow. But you know, when there's closing, it's a big moment. The owner gets wired. Usually a pretty substantial paycheck. Usually owners don't communicate to the employees that this is going on until afterwards. You don't want to promise the employees they're going to become owners of the company and then disappoint them. You know, subsequent to the closing there's usually a rollout to the employees and they party. Yes. I've had one client and he was that outlier who shared a lot of financial information always with his team. It's a manufacturing client. They're Nashville, North Carolina. And when he did the esop, he brought everybody in and he said I've sold half the company. And all their faces dropped because you know, there's 70 manufacturing employees in Asheville. They think all their jobs are going to. To China. And then he waited, waited, waited to you. And it was quite a moment. The cameras caught everybody getting so excited and the like. And I mentioned that other client in Jacksonville in January where the emotion was just touching and surprising.

Wow. Very interesting. That'd been good to have on video. Just.

Yeah, no, they had a team there. I'm happy to share some of the video with you. It was something. You think they just won the World Series.

Yeah. I can see them being very excited about it. So earlier we talked about the tax benefits of ESOPs. Does the corporate structure have an impact on that?

The corporate structure is part and parcel to every ESOP. So back in 74 there were only C Corps. Back then, few S Corps kicking around. But S Corps and then LLCs became very popular in the 80s. But the initial ESOP legislation was all tied to you being a C corporation. And then in 84 when they allowed you to do the 1042 rollover and defer all your capital gains, that was also tied to you closing your transaction as a C corporation. They didn't shift that in 1998 when they allowed S Corp ESOPs. So pulling it all together, if you're a C corporation, you have the opportunity today to close as a circle and then elect S Corp status and enjoy being tax free in perpetuity. If you close as an S corporation, if you don't do any planning, you just have to pay capital gains taxes. That's just how it works. So a lot of times if we have an owner who is an S corporation, we'll do the analysis and we'll often recommend they close as a C corporation. If they do that, they get to defer all their gains on the sale, but they have to live as a C corporation for the next five tax years before they can become tax free 100% S Corp ESOP. So structure is important. LLCs are their own unique animal. With an LLC they're actually not allowed to be ESOPs except in very, very unique case. So you are allowed to do a tax free exchange of your LLC into a C corporation, closes a C and then you can become and S Corp very quickly thereafter, the very next January 1st if you like. So structures are important as part of the analysis that we do and to guide the owner into what their options are.

It sounds like the best bet's being.

An S Corp. Well, you want to become. That's the holy grail of ESOPs. 100% S Corp ESOP with warrants companies operating tax free, it's got more rocket fuel than anyone else. Because you're not paying quarterly estimates, you've got the ability to grow and expand. And if the owner still has a warrant piece, they've got their own equity upside. So they have a potential future buy to the Apple. And having all that extra working capital year over year makes it a great likelihood that the employees will have a valuable asset to sell when it comes time to redeem their shares.

Tell me more about upsides. How can the owner of 100% ethop retain upside in their company.

There's a couple of ways. Let's say we had a company and we were going to sell it. The enterprise value was $10 million, earning 2 million worth five times its earnings. We might say to that owner, why don't you consider selling 75% of the company for 7.5 million and we'll raise 5 million at closing for you. You'll have $2.5 million of seller notes. And then we're going to suggest something unusual. Say that you Redeem your remaining 25% actual equity for warrants and then we'll add another piece in there. We'll say, you know what, because you have seller notes, you've got $2.5 million seller notes and you're behind the bank. You really do a mezzanine interest rate on those seller notes. But you don't need more ordinary income. You already had plenty of ordinary income. Why don't you take a lower interest rate? Let us get you more warrants for that. So we'll get you a piece of warrants for the equity you're turning in a piece of warrants for the lower interest you're taking on your seller notes. And, and you can end up with about 40% warrants, let's say, redeeming that remaining 25% equity. Well, at that point the 75% that you sold to the ESOP becomes the only outstanding shares. So now The ESOP owns 100% of the outstanding shares. There's no more tax consequence. The K1 goes to the retirement trust, doesn't pay federal taxes, and Your warrants under Reg. 409P are disregarded for tax purposes. So as you roll out into the future, the company has all this extra cash flow because it's not being drained on a quarterly basis. Taxes and those warrants become very valuable. You can sell the warrants back to the ESOP or to the company at some point if the whole company is sold, the employees benefit, the selling shareholder gets to get liquidity on his warrants as well. That's kind of how it all works.

Are there broader benefits to having an employee owned company?

I think we touched on those before. This idea of aligning employees and owners interests is huge. It's huge. I'm sure you see all the articles about concentration of wealth and how it's become more and more concentrated over the last couple of decades. This is one of the most elegant and beautiful ways to balance that out a little bit. You've got everybody who's rowing the same direction to create A valuable enterprise. They're being allocated equity in that enterprise that they're going to be able to monetize at a certain point in the future. You're just creating a win win situation. I see it, I see it in a number of my clients, how well it work. I had one client, big staffing firm. He goes, richard, I can't believe it. It's been two years since we've done the ESOP. I had managers before we did the ESOP. I couldn't get them to work past 5 no matter what. And here they are working till 7, 7:30 at night, they're coming in on weekends. That's the kind of alignment that can be inspirational for the entire enterprise.

Can you give me just some other examples of companies that you've worked with just to get a sense how the transactions have played out?

Sure. I would love to talk about a particular transaction that was just really interesting. So some of these owners become friends over time. You spend so much time with them on these transactions. And, and here's somebody who'd built a business over 24, 25 years, is about 50 years old. And, and he said, richard, you know, I've got management in place, but I've really been working six or seven days on this thing for decades. You know, most of my net worth's tied up here. I'd like to have a liquidity event. And so we explored leverage to optimize ESOP versus a third party sale. And what we came up with, and I'll just use some kind of generic terms, enterprise value was $20 million. And we had suggested he sell 80% for 16 million. We were able to raise 9 million at closing. He had $7 million of seller notes post transaction. He still had 20%. We had him redeem that 20% for warrants and he was able to take the entire 16 million off the table, defer all his capital gains, which saved in most states that would save you about 5 million. This particular client was in Florida and it saved him still over $3 million in capital gains taxes. And then he went forward in that fashion for a couple of years. And then he called me up and he said, Richard, I'd just really like to step aside completely now. Let's sell the whole company. Now. We were only a few years in shares had only been allocated to the employees for a couple of years. The trustee had said, if you sell this company, you know, they were thinking with foresight, if you sell this company in the next five years, even though we effectively own, in this case they still effectively own 60% of the company. And even though we only own 60% and maybe only 20% of that 60% has been allocated to the employees, we want you to allocate half the shares if you sell in that first five years. So we allocated, invested half the share. So that's 30% that were vested and allocated to the employees immediately. The other 30% went back to treasury. The selling shareholders still had 40% in the formal warrants. So when we had the second sale company selling at 25 million, the owner gets the rest of his seller notes paid off. The rest of the 7 million didn't have to pay capital gains on the first 16 million. And now the owner's warrant piece and the employee piece, they split the remaining 9 million, basically. What did that mean? Well, when you looked on it, on balance, the owner had a much better exit after tax than he would have if he had just sold private equity out the gate. But here, because he put the ESOP in place, there was an acceleration of the allocation to the employees. They ended up on average with five times their annual salary into their retirement plans, into their IRAs and their 401 s. He said, Richard, I brought the employees one at a time. I said, you know, we've sold the entire company now. And they said, well, what does it mean for me? Well, you know, you're getting five times your annual salary into your 401k plan where you can continue deferring that till you retire. They were in tears. It was just a great moment. So once in a while you do an ESOP transaction and then if there's another liquidity event several years later, wow, what a love letter to leave to your employees versus just selling out the gate.

Yeah, absolutely. That's a really great story, Richard. What's the craziest thing you've seen in.

M and A in M and A transactions? I don't know. I mean, I'd have to go back to Google's foresight or Alphabet in buying, you know, YouTube or something where, you know, they're paying billion plus in for a company that's got no revenues and a lot of expenses.

So let me rephrase that. What's the craziest thing you've seen in an ESOP transaction?

Well, the craziest thing that I saw in an ESOP transaction was the overwhelming emotional outpouring of this one client in Jacksonville. Although I do see that a little bit now and again. But that one was just extraordinary. That last example I was going through, that was pretty wild. I don't expect my clients to be calling me back 24 or 36 months later and saying, hey, now sell the whole company and then having that kind of outcome. So that was just kind of a beautiful, seamless outcome. It's not a wild thing. But I had a client enterprise values 200 million sold to the ESOP. That's one where the employee came up to me a year later and said, hey, my ESOP statements aren't showing hardly anything. I said, yeah, it's a $200 million transaction. There's $200 million of debt on the company. I said, five years from now, there's going to be no debt on the company and there's going to be $200 million in enterprise value and there's 200 employees. Do not quit your day job. So once in a while I see these situations where the ratio of earnings to headcount for employees is really high. So in those circumstances, I know it's just going to create this magical benefit for the people down the road.

Hey Richard, thank you very much for the time today. I really enjoyed our conversation.

So much fun speaking to you, Kisan. Thank you so much.

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