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date: 19 October 2020

Abstract and Keywords

The literature on Employee Stock Ownership Plans (ESOPs) has developed significantly over the past decades. Yet, despite ESOPs being well conceptualized, the deals struck in the real world are often more complex endeavours than suggested. While there are examples of ESOP deals as a one-stage process, it is often the case that ownership is transferred in multiple steps financed through subordinated debt. In addressing this added complexity, we will introduce concepts of ESOPs before providing a detailed description of what an add-on transaction entails. In doing so, we are particularly interested in describing key steps with focus on the impact on business and employee-owners. The paper will provide readers with additional insights into the widely used practice of multi-tranche ESOPs. Understanding the agents involved in the process, as well as the impact and potential pitfalls of add-on transactions are crucial factors in developing ESOPs as an alternative to external buy-outs.

Keywords: ESOPs, subordinated debt, employee ownership, finance, multi-tranche Employee Stock Ownership Plans

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