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Real Estate, Development & Construction| Client Successes

ESOP Is Used To Leverage Profits

Situation

The five unrelated owners of an entertainment company wanted to sell their business for as much as possible and go their separate ways.

Result

Based on a 6x multiple of $30 million annual cash flow, the company was worth approximately $180 million. However, if the company were to sell its real estate to a REIT and agree to pay $15 million rent, the REIT would pay 10x rent, or $150 million, and leave the company with $15 million of EBITDA worth $90 million. This strategy resulted in $240 million of value instead of $180 million. The stock was sold to an ESOP, which was willing to own the company subject to the lease terms. Further, the favorable income tax-free ESOP structure enables rapid debt paydown.

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