Tide has turned (somewhat) for ESOP valuations

BVWireIssue #249-4
June 28, 2023

ESOP valuations
ASA, conference, employee stock ownership plan (ESOP)

From a regulatory standpoint, the tide has turned to some degree with respect to ESOP valuations, speakers said at the ASA’s ESOP Virtual Conference on June 20. There has been a major court victory and pressure from the ESOP and valuation communities, and now the DOL has committed to move forward—hopefully—with long-awaited regulations on the valuation of company shares to be bought by an ESOP (see our coverage here). Some other takeaways from the conference:

  • Overall, the number of ESOPs has been declining, a trend driven in particular by a drop in prevalence of ESOPs at public companies;
  • The National Center for Employee Ownership (NCEO) and the ESOP Association are good resources for how ESOPs operate and the regulatory frameworks that apply—all of which impacts valuations;
  • There are more similarities than differences between ESOP valuations and company valuations for gift/estate purposes;
  • Projections continue to be the main issue raised when valuations are scrutinized;
  • While the DOL is still in the litigation arena, private plaintiffs (e.g., ESOP participants, beneficiaries) are bringing more cases;
  • Plaintiffs and the DOL do not favor control premiums, so it may be more appropriate to reflect control in the cash flows if possible; and
  • The valuation community will need to respond to a “call for action” and provide feedback when the DOL’s proposed regs are issued.

The conference was presented by the American Society of Appraisers and sponsored by Empire Valuation Consultants. More details will be in a recap of the conference in the August issue of Business Valuation Update.

Please let us know if you have any comments about this article or enhancements you would like to see.