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Why private equity investors are buying ESOP-controlled companies

August 29, 2017 Article 5 min read
Authors:
Michael Krucker
The strong returns of employee-owned companies make them appealing to private equity investors. Now, warrant transactions are enabling investors to take a stake in ESOP-controlled firms and capture gains in their future value. Read more at The Business Journals.

People on a tablet discussing ESOP controlled firms

Employee-owned companies are among the best investments because of their outsized returns, but for private equity investors, buying these firms has traditionally been out of reach. Now, however, some PE investors are leveraging an innovative financing structure to share in the rapid growth of these companies through warrant transactions.

S Corporation employee stock ownership plans ( ESOPs) are a type of defined contribution retirement plan that Congress exempted from taxes in 1998 to encourage employee ownership. They are typically used to help a business owner sell all or part of their firm to cash out, to facilitate management succession or to allow employees to share the profits of their labor.

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