Being Acquired by an ESOP Company Toolkit

The Being Acquired by an ESOP Company Toolkit has been developed to help company leaders evaluate the pros and cons of one path to employee ownership: selling the business to a company that already is employee-owned.

This toolkit begins with a brief overview of the five paths to employee ownership, then looks specifically at the threshold questions to determine if being acquired by an ESOP company is worth exploring in your situation. The next section highlights research findings about the frequency and success of M&A transactions by ESOP companies, and the last two sections preview typical transactions and give some suggestions for finding ESOP-owned companies that might be good acquirers, including the directory of acquisitive ESOP companies, launched in June 2025.

This page and most of the resources it links to are open to the public. A few of the resources it highlights are in our members-only area. If you would like to learn more after reading this toolkit, join the NCEO. 

You have a lot of choices when exiting the company you have worked so hard to build. You might be able to sell to another company or a private equity firm. Or maybe you have key employees who have the funds and risk appetite to make an offer. Selling to an outside buyer, however, involves the risk that they might not keep all your staff, might move your company elsewhere, or might not be true to the values you built into your company.

To evaluate whether selling to an ESOP company is the best path for your business, you need to weigh it against the alternatives.  If you already know that you are committed to employee ownership in some form, Who Should Own Your Business After You? is a good introduction to the ways in which a company can be employee-owned, or, if you want a broader perspective that includes non-employee-ownership approaches, take a look at our web article comparing forms of employee ownership in table form. Both of those documents are densely linked to further reading on any topic you want to explore further. You can also read about how Michael and Lynn Terry weighed those options when they faced their own exit from Cimarron Trailers.

The most common form of employee ownership in the United States is the employee stock ownership plan (ESOP). The ESOP Pre-Feasibility toolkit (which includes the ESOP Tax Advantage Calculator) can help companies explore whether setting up their own stand-alone ESOP is a good fit for their situation. 

Creating an ESOP company is often the right choice, but before making that determination, companies should consider how it compares to selling the business to a company that already has an ESOP. A sale can offer potential benefits:

• All M&A transactions are complex and labor intensive, but being acquired by a company with an existing ESOP can simplify the process for both the seller and the acquired company, often resulting in a lower transaction cost.
• The ESOP company can pay a competitive price for your company.
• Most newly created ESOPs involve partial seller financing, and selling to an existing ESOP may give the seller the option of providing less or no financing.
• The transaction costs of selling to a company that already has an established ESOP may be paid for by the buyer, although this might be factored into what the buyer pays.
• Depending on how the deal is structured, you may be able to get a tax benefit on the sale.
• Your employees will generally become participants in the ESOP of the buyer, at no cost to them.
• your employees being better off than selling to any other buyer.

This case study of Valley Honda is written from the perspective of an owner trying to decide whether to set up an ESOP for his own company or to sell the business to a company that already has an ESOP. In order to make that decision, you need to understand the basics of how ESOP transactions work. Here is an article on creating a new ESOP vs. selling to an existing ESOP company.

You can also read our article that compares selling to an ESOP versus selling to a conventional company.

In a February 2025 review of publicly available reports on acquisitions by ESOP companies, the NCEO was able to identify almost 1000 transactions. Making some assumptions about the representativeness of the companies included in the review, our review suggests that over the last five years, ESOP companies made an average of 277 acquisitions annually and that those acquisitions represent over 19,000 employees annually. These numbers suggest that acquisitions are likely a substantial source of the growth in ESOP participants. 

The tendency of ESOP companies to seek acquisitions may be partly the result of their competitive advantage in general. In addition, however, research on acquisitions by ESOP companies also shows that they tend to have better outcomes for employees and companies. For example, employees at ESOP companies are laid off at one-third to one-fifth the rate of other companies, have about three times the total retirement assets, and have far lower turnover. 

While every acquisition will be different, selling to an ESOP company is much more likely to result in your employees being better off than selling to any other buyer.

Selling your company to an ESOP company can be much like a sale to any other company. You either sell your shares, or the company sells its assets to the buyer. Or, in some cases, you may first set up an ESOP in your own company, sell your shares to that ESOP, followed by the two ESOPs merging. You will pay whatever taxes are due, and the specifics of the companies and the transaction structure will have a large impact on those taxes. 

No matter how the transaction is structured, the employees of your company become employees of the buyer and will generally become participants in the buyers’ ESOP and other benefit plans. More details on the financing, typical structures, taxation, and impact of C corp and S corp status are in Structuring a Sale to an ESOP, and the NCEO publication Acquisition Strategies for ESOP Companies includes chapters on transaction structures, financing alternatives, the role of the ESOP, and more

This June 2025 community conversation steps companies through the process of preparing for a sale, finding an ESOP company buyer, and making sure the transaction succeeds. This 2022 webinar talks about how two acquisitive ESOP companies approach the strategy, communications, and practical considerations of acquiring companies.

In any transaction, there will be multiple integration-related concerns with the new company, including management roles, technology, facility utilization, etc. A well-structured deal needs to have an integration team set up with members from both companies to manage all the issues described in the Integrating Two Companies: The Firstar Case Study. This will take time to work out. The article Acquisitions and Integrations, Who You Gonna Call? highlights one acquiring company’s experience in this area. The case study of Cimarron Trailers shows what that integration—and success—look like in practice.

In addition to tackling the core employment issues, one of the biggest factors in making an acquisition productive is the announcement to both workforces. The initial impression will cover everything that follows. Companies may wish to take advantage of The Download and other communications resources.

If all of this seems like it is worth exploring, how do you find an ESOP company to sell to? Just going to a business broker or M&A advisor probably won’t help—they are unlikely to know which firms are ESOP-owned. In this toolkit, we have listed a number of ESOP companies that are actively seeking to make acquisitions, along with a number of ESOP advisors who specialize in ESOP M&A work. That’s a good place to start. 

You can also visit the NCEO’s directory of acquisitive ESOP companies to find companies with ESOPs that are actively seeking to acquire businesses. 

Finally, you can obtain a list of ESOP companies from the NCEO. This list is based on the filings these companies are required to submit annually to the Department of Labor. The list includes information about industry, location, and the number of active ESOP participants (a reasonable proxy for the number of employees).