Transferring Ownership of a Mid-Sized Firm: Consider an ESOP 

Transferring Ownership of a Mid-Sized Firm: Consider an ESOP 

Over the next 20 years, 70% of the owners of small and medium-sized American businesses will be retiring.

According to a 2017 survey by Wilmington Trust, 58% of 200 such firms surveyed had no plan in place for transition of the business. For owners who don’t plan to sell and want their businesses to continue as going concerns after they retire, this spells trouble.

One option that they might consider is selling the business to employees through an Employee Stock Ownership Plan (ESOP). This vehicle will allow owners to fund their retirement, maintain the businesses independence and see their employees perpetuate their legacy. There are risks involved though, and it is essential that new owners are strong leaders with appropriate management skills. The business will have to generate sufficient cash to fund operations and buy out the original owner.

With so many Baby Boomers looking at retirement and the fact that midsize businesses make up 34% of US GDP and 33% of employment, successful transitions are critical to our economic well-being. Let’s look at an example of one company that did things right.

HdL is a midsize professional services firm based in Southern California. Robert Hinderliter founded the company in 1983 and co-owner Lloyd de Llamas joined him in 1987.  Today Hdl has five offices and 80 employees engaged in helping local governments with compliance audits, analytical services and software.

When both owners turned 65 in 2005, they began to look for an exit that would allow the business to carry on. Two years later, they created an ESOP and sold 33% of the business to employees. There are a number of features they found necessary for success:

  • Only truly transferring ownership makes it real
  • Transparency is essential
  • Choosing the right leader is vital
  • It’s important to consolidate the team around the new leader
  • Be strategic about succession

To read a detailed case study of how the owners developed these principles and how the succession transpired, please see
Transferring Ownership Of A Midsized Firm: How HdL Made Its ESOP Work | Forbes

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