“Repurchase obligations are a hot issue in ESOP valuations,” Donna Walker (Columbia Financial Advisors) told the audience at the ASA/CICBV Business Valuation Conference in Miami. “Many believe that the appraisal profession’s failure to incorporate the RO in an ESOP appraisal will result in an inability for any ESOP company to sustain itself over time,” Walked explained. “As more mature, large ownership ESOPs come to dominate the landscape, governance issues have come to the forefront. We’re going to see increased scrutiny about how appraisers take RO into consideration in the value. ESOP companies won’t just ask you “have you taken the RO into consideration, they are going to ask you how you’ve taken it into consideration.”
The RO obligation issue has resulted in the ESOP association’s publication Issue Brief #25: Integrated Relationship of ESOP Repurchase Obligation and Valuation in August 2010. “The publication provides you a good framework on how to deal with RO,” Walker added.
The Issue Brief is on the ESOP Association website. Free for members; Non-members may purchase it at the ESOP Store for $12.00. And, there's always BVR's recent webinar on ESOP and repurchase obligation issues.