Merit Capital Partners: Investment Focus

INVESTMENT FOCUS

Divestures
ESOPs

Dunn-Edwards Corporation
Parksite, Inc.

Fundless Sponsors
Direct With Management

ESOPs

Employee stock ownership programs, commonly referred to as ESOPs, provide a means to transfer ownership to employees, while giving tax-advantaged liquidity to shareholders. Congress has enacted important tax incentives for the creation of ESOPs to foster employee participation in the ownership of businesses. While many mezzanine capital providers avoid financing leveraged ESOPs, Merit has developed an expertise in providing mezzanine capital in these situations.

The use of mezzanine capital as a means of financing an ESOP carries many of the same benefits achieved in non-ESOP transactions. Key benefits of using mezzanine debt in conjunction with an ESOP include the following:

Sellers of a business can defer the gain on the sale of their investment by selling to an ESOP.
Companies that sponsor ESOPs can deduct their ESOP-related principal and interest payments from taxable income and thereby reduce their tax liabilities.
Beyond the tangible tax advantages for the sellers and the company going forward, a company that uses an ESOP may also profit from enhanced employee productivity resulting from employee ownership.
Merit has worked with many types of ESOPs including those with 100%, majority and minority ownership positions in their companies.