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Electrical & Civil Contractor

Background

  • Divisions: civil & excavation, electrical & instrumentation, high voltage, wireless & communications
  • Located in Utah with other locations across Wyoming, Texas, North Dakota, Colorado & Kansas
  • S Corporation with approximately 300 employees
  • Company value $54,100,000
  • 12 shareholders, several family members involved in the business

Goal

  • Founder and shareholder with more than 50% ownership was looking for an exit strategy
  • Looking for liquidity and a tax effective way of passing ownership to his family members
  • Interested in retaining & motivating existing employees while having a tool to attract new employees

Solution

  • Establish an ESOP
  • All shareholders will sell 100% of their stock to the ESOP
  • In exchange for selling their stock sellers will receive cash and notes
  • Company will borrow $12,200,000 in senior debt to fund the payoff of shareholder’s Accumulated Adjustment Account balances and the remainder will be used towards the stock sale

Benefit to Client

  • Owners received $9,600,000 cash at closing for payoff of AAA notes and stock sale down payment
  • Some shareholders were cashed out entirely, others received cash and seller notes
  • 15 year seller notes totaling $44,500,000 at a 4.5% interest rate (life of loan interest = approx. $13mm)
  • Shareholders received 1,500,000 warrants to divide between seller note holders
  • At the end of the seller note period the projected value of warrants is estimated to be $40,000,000
  • As a 100% S Corp ESOP owned company, 100% of future profit will not be taxed from that point forward
  • Over the next 15 years the corporate tax savings are estimated to be over $67,000,000

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