Acquisitions Take Center Stage at Employee Owned 2025

The Employee Owned 2025 conference made one thing abundantly clear: acquisitions have moved from a niche strategic option to a core topic for ESOP leaders. With seven dedicated sessions exploring various aspects of ESOP acquisitions, the conference reflected a fundamental shift in how employee-owned companies view growth and sustainability.

From Peripheral to Essential

Acquisitions are increasingly becoming integral to the core ESOP Essentials topics due to their growing relevance in the strategic growth and sustainability of employee-owned companies. These sessions covered the full spectrum of acquisition activity, including considerations for trustees and executives, managing cash and capital allocation, due diligence, integration, fairness opinions, and valuation during acquisitions.

This level of attention illustrates that acquisitions are not just a peripheral topic but are becoming a critical component of ESOP strategy. They address how acquisitions can drive growth, diversify risk, and ensure long-term sustainability, aligning with the broader goals of ESOP Essentials. As ESOP companies mature, acquisitions are increasingly seen as a vital tool for maintaining competitiveness and enhancing employee ownership benefits.

Preparing ESOPs to Pursue Acquisitions

One session brought together Michael Morosi from 40 Million Owners and Tracy Woolsey from GreatBanc Trust Company to walk attendees through the practical realities of preparing ESOPs to pursue acquisitions. Their presentation provided a comprehensive framework spanning three critical phases: Design, Execute, and Integrate.

Why ESOPs Make Compelling Acquirers

The session opened with a foundational point: ESOPs are highly competitive acquirers. This advantage stems from four key factors:

Sellers’ Legacy: ESOPs operate on a perpetual time horizon, offering sellers a path to reward their employees with long-term wealth creation while maintaining community impact. The potential for greater after-tax proceeds through Section 1042 treatment adds financial incentive to the legacy benefits.

Culture of Ownership: Acquisitions don’t dilute ownership culture; they amplify it. For the acquiring business, bringing on new employee owners helps focus and better define culture. For the acquired business, ownership culture becomes a force multiplier and source of synergy. Larger organizations have more resources to invest in best practices, and increasing share values on ESOP statements reinforce the importance of ownership.

Financial Capacity: Midstream ESOPs often build considerable excess cash over time and maintain strong banking relationships relative to similarly-sized peers. This enables competitive terms and confidence in closing that sellers value highly.

Operational Infrastructure: Acquisitive ESOPs benefit from a bench of advisors, management depth, shared services opportunities, and the development of a repeatable deal style and integration playbook.

Strategic Imperatives for Growth

The presentation emphasized that growth through acquisitions isn’t optional for ESOPs seeking sustained increases in share price.

Acquisitions serve multiple strategic objectives:

• Growth: Entering new markets, regions, products, or services
• Diversification: Addressing risk factors that impact valuation multiples
• Talent: Adding depth to management and front-line talent
• Sustainability: Creating durable cross-cycle value and extending company lifecycle
• Impact: Expanding the reach of employee ownership

Importantly, these objectives translate into compelling employee communications. The growth imperative acknowledges that preserving the status quo isn’t an option. Diversification promotes stability and increases the long-term sustainability and safety of employees’ nest egg. Acquisitions can decrease the burden on individual business units, markets, or teams while spreading the benefits of employee ownership.

Getting Started: The Design Phase

For ESOPs considering their first acquisition or refining their approach, the session outlined a disciplined design phase focused on four elements:

1. Alignment with Strategy: Acquisition strategy must be consistent with corporate strategy, long-term objectives, and team readiness
2. Strategy Selection: Choosing between horizontal, vertical, or conglomerate approaches
3. Target Selection: Defining clear criteria for potential acquisitions
4. Primary Objective: Attacking the reasons for valuation multiple discounts, whether end market concentration, customer concentration, cyclicality, seasonality, or capital intensity

Key Lessons Learned

The presenters shared practical wisdom from years of experience:

• People and fit above all else: Spreadsheets are helpful, but acquisitions are real-world activities involving human beings and organizational cultures
• Acquisition multiples matter: “Well-bought is half-sold” applies even for long-term investors
• ESOP deals take time: Maintain confidence throughout the process
• Deal fatigue is real: Both sides experience it, and managing energy and momentum is critical
• Section 1042 is not for every deal: Lead with other benefits of ESOP acquisitions

Who Should Be Involved

The session provided clear guidance on stakeholder involvement. The company team (board, senior management, and relevant division leaders) should always be involved. The ESOP trustee must be informed as a substantial shareholder and will instruct on what they need to proceed. Other professionals typically include corporate legal counsel, ESOP legal counsel for technical concerns, and bankers if financing is needed. Investment bankers, recordkeepers, and company accountants may be involved depending on the specific transaction.

Holding Company Growth: The Private Equity Response

Beyond the mechanics of individual acquisitions, the conference addressed a broader strategic challenge facing ESOP companies, particularly in design, engineering, and environmental services sectors. The rising level of private equity acquisition activity demands a strategic response, and forming ESOP holding companies is emerging as a natural and effective next step for many employee-owned firms.

This evolution reflects the maturation of the ESOP model. As employee-owned companies build financial capacity, operational infrastructure, and acquisition expertise, they’re increasingly well-positioned not just to compete with private equity but to offer sellers a compelling alternative that preserves culture, rewards employees, and builds lasting value.

Learn More

The depth and breadth of acquisition-related content at Employee Owned 2025 confirms what we’ve been seeing in our advisory work: acquisitions have become central to ESOP strategy and execution. Whether you’re contemplating your first acquisition, refining your approach, or considering a holding company structure, we’d welcome the opportunity to discuss how these strategies might apply to your situation.

If you’d like to explore any of these topics further, we’d be happy to schedule a call. Please reach out to continue the conversation about how acquisitions can accelerate growth, diversify operations, and deepen ownership culture across your organization.