Employee Stock Ownership Plan
BE Hands together

We all read at some point that a craft brewery was sold to AB InBev or to any other giant brewery right?
But is there any other option for those who want to cash out? Maybe…sometimes they sell their business to their employees!

Some brewery owners fell a sense of family inside their work space and may believe that they need to reward everybody who works with them, not only the first few guys who helped him since the beginning. So, when they think of selling the business, they try to different plan to try to reward all the employees. This is called an Employee Stock Ownership Plan - ESOP.

An ESOP makes the employees stakeholders and make them to start think like an owners, specially if the first stakeholders help them in the process with lots of information. Another advantage with this plan is that the owner can keep the company very close to what he created, because there is no outside brewery or investor looking to change the way things work.

The process is not that simple, but no business deal nowadays is, right?

The brewery decides the percentage of the company that goes to this ownership plans. Then, the brewery buys shares from the shareholders who want to cash out, most of the times using a bank loan. Then the company issues shares to the Plan in exchange for a promissory note. Later the debt is paid and the shares are released to the individuals.

According to Verit Advisors, a firm specialised in ESOP plans, companies who adapt such type of plan tend to outperform non-ESOP companies, in the same industry.

But this plan is not always a good idea. If the stakeholders are looking to maximize their profit in the process, they should think about other options. The Employee Stock Ownership Plan can only pay market value on the shares. And in most of the cases, a private equity or a large brewery will be willing to pay a premium for the brewery.

Some can say that the fact that there is no outsiders in this sell maybe bad for the business. No new blood means no new strategies and no new investments. So business expansion and new markets will come in a slower rate (with less risk as well).

And if the the brewery needs some drastic change to adapt to a new market challenge, this is not the best option.

Some very important breweries in the U.S. have already created their plans. Some time ago, Harpoon Brewery announced that it would sell 48% of the company’s shares through this process. In 2013, New Belgium Brewing announced a 100% employee owned structure. Alaskan Brewing and Deschutes Brewery also have plans, but for small percentages.

Early this month, Left Hand Brewing announced its structure that will sell at least 15% of the company to its employee, who already have almost 50% of the business.

So if the brewery is going well and the owners believe that the project is good and are not looking to maxmize their profits, this is could be a good solution to keep a brewery craft and even more important to the locals.

What do you think about this option?


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