Background

• Commercial plumbing and mechanical contractor for large medical centers, tech facilities, manufacturing plants, and professional sports stadiums
• C Corporation with approximately 750 union and non-union employees
• 3 shareholders, several family members involved in the business
• Company value $110,000,000

Goal

• Tax-free liquidity event for owners
• Exit strategy within 5 years
• Employee retention & motivation
• Method of rewarding non-union employees
• Corporate tax deduction

Solution

• Establish an ESOP, excluding union employees
• All shareholders will sell 100% of their stock to the ESOP
• In exchange for selling their stock sellers will receive cash and notes
• Shareholders elect IRC 1042 to avoid/defer capital gains tax on stock sale
• Following year of stock sale Company will elect S Corp status
• Company will borrow $30,000,00 in senior debt

Benefit to Client

• Owners received $30,000,000 cash at closing
• Sellers carried the balance with 15 year notes (life of loan interest approx. $43,000,000)
• Shareholders received warrants to divide between seller note holders
• At the end of the seller note period the projected value of warrants is estimated to be $54,000,000
• Sellers avoid over $40,000,000 in capital gains tax
• As a 100% S Corp ESOP, 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 $164,000,000