Guide to ESOP Valuation and Financial Advisory Services (Second Edition)

BY WILLIAM C. LUDWIG

by Robert F. Reilly and Robert P. Schweihs
Willamette Management Associates Partners, 2007, 585 pp.

The Guide to ESOP Valuation and Financial Advisory Services (Second Edition) expands and updates information from the first edition on employee stock ownership plans (ESOP) published in 2005. The book is based on a compilation, adaptation and expansion of articles written by the authors over the past several years and reflects the current thinking of professional practitioners on ESOP valuation issues. Little text is devoted to how to value a business. Rather, the focus is primarily on uses of valuation reports and related issues.

Although primarily targeted toward other professional practitioners, the guide will be useful to ESOP-involved trustees, legal counsel, accountants and auditors, administrators and financial advisers. A broader audience will also find value in this publication, including: ESOP sponsors and potential sponsors; employer managements; non-ESOP stockholders; and plan participants.

The book is logically organized and begins with issues related to structuring the ESOP transaction. This first section includes discussions on the common uses of ESOPs and their tax benefits. The next section focuses on basic stock valuation issues and includes a discussion on the differences associated with valuing large and small corporations.

From there, the book moves on to more advanced valuation issues including different approaches to the valuation process and various adjustment factors that might influence a valuation. Chapter 14 provides a good introduction to the impact of the employer stock repurchase obligation on the valuation.

Sections IV through VI provide numerous examples of the various uses of financial adviser (that is, valuation) services ranging from fairness opinions to solvency determinations, reasonableness of compensation, litigation support and expert witness testimony. Checklists are provided for valuation and fairness opinions as well as for solvency opinions.

The last sections of the book contain sample reports for several ESOP-related purposes—one for a proposed ESOP transaction including a fairness opinion and one for an existing ESOP valuation. A sample case study determines the reasonableness of executive compensation. The authors make clear what goes into such reports, including the analysis, rationale and conclusions. The samples show the end user what to expect from a competent financial adviser and can serve as a benchmark against which similar reports can be prepared. Overall, the second edition of the Guide is a valuable addition to any ESOP practitioner’s library.

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