Owners of a successful, quickly growing engineering firm asked Elliott Davis: “Can you help us present to our key employees the operational and financial implications involved with transitioning from an employee to ownership role?”
Context
Mechanical and electrical engineering firm providing services primarily in the Southeast
Second generation of leadership, with one legacy owner looking to transition his shares to key employees
Challenged with determining the best timing and structure for transferring ownership responsibilities
Needed to develop a plan to help key employees understand and evaluate the decision of ownership
Our Approach
Focused on aligning the direction of the business with the desires of both senior and junior owners
Completed the engagement in two phases:
Current governance & areas for improvement, and
Equity admission of new partners
To understand current gaps, conducted interviews with all three existing owners separately
Key areas to help employees understand the equity admission decision were as follows:
Finance: Valuation considerations, company outlook, distributions, personal debt amortization
Operations: Expanded roles and responsibilities, owner mindset, continued performance of existing responsibilities
Governance: Voting power, restrictions of equity
Client Impact
Potential new partners understood ownership opportunity including base case and downside risks and the expected potential rates of return on equity
Senior partner offered equity to three new junior partners, all of whom decided to purchase equity
Client tax team learned about and made informed decisions on tax advantageous ownership transfer structures
Client updated Company valuation criteria to facilitate future ownership transfers
We Can Help
For more information on how Elliott Davis can assist you and your business, contact us.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
