Company Ownership: ESOPs on the Rise in A/E Design Firms

01/29/2005


Employee stock ownership plans, or ESOPs, are becoming increasingly popular among firms in the architecture, engineering, planning and environmental consulting industry, according to researchers at Natick-Mass.-based ZweigWhite.

ZweigWhite’s annual Valuation Survey of A/E/P and Environmental Consulting Firms finds that the percentage of firms with ESOPs has increased from 17% in 2002, to 22% in 2003, and finally, to 26% in 2004.

“ESOPs have been around for more than 30 years, but seem to be gaining in popularity in the [A/E] industry in recent years. One reason may be the legislative changes effective in 1998, which made S-corporations eligible to sponsor ESOPs,” said Ian Rusk, ASA, a ZweigWhite principal who specializes in financial advisory consulting.

Another reason may be simple demographic forces. The A/E/P industry is a highly fragmented one, with tens of thousands of companies, many of them relatively small (under 100 employees) and still owned and operated by their founders.

“With many of these first generation owners being of the baby-boom generation and nearing retirement, and given the tax efficiencies of ESOPs, it's not surprising to see more firms employing them as a tool to manage major stock redemptions,” said Rusk.

He further explained that the tax advantages of the ESOP include the ability of the company to deduct the principal portion of ESOP debt and redemption of shares through contributions to the ESOP plan. From the sellers’ point of view, selling their shares to the ESOP may allow them to defer the capital gains tax on the sale under certain circumstances, although this deferment is not applicable for S-corporations.

“ESOPs are not for everyone, however. Factors such as firm size, cash flow, debt service capacity and corporate culture need to be carefully considered,” cautioned Rusk.

For more information go to www.zweigwhite.com





Product of the Year
Consulting-Specifying Engineer's Product of the Year (POY) contest is the premier award for new products in the HVAC, fire, electrical, and...
40 Under Forty: Get Recognized
Consulting-Specifying Engineer magazine is dedicated to encouraging and recognizing the most talented young individuals...
MEP Giants Program
The MEP Giants program lists the top mechanical, electrical, plumbing, and fire protection engineering firms in the United States.
May 2018
40 Under 40 winners, fire and life safety, performance-based designs, and more
April 2018
VRFs, lighting controls, BIM coordination, and more
March 2018
Sizing water pipes, ASHRAE 90.1, recovering waste heat, and more
Data Centers: Impacts of Climate and Cooling Technology
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
Safety First: Arc Flash 101
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
Critical Power: Hospital Electrical Systems
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me