EP6 - Mad World of ESOPs - As Transactions Vary

The Mad World of ESOPs!  This episode reviews the roles ESOP professionals play and the reality of variance in one transaction to another.  We discuss the differences in costs, approaches to structure, closings, and other areas given the backgrounds, perspectives and objectives in leading the transaction.  This episode is intended to help orient the listener to questions they may want to ask on their journey to an ESOP. 

Transcript

[0:09] Hey everyone this is the journey to an ESOP and Beyond podcast where we get into Employee Stock ownership plans pre- ESOP post ESOP. Pre-op is really about like does it make sense for your company to transition to uh in a play stock ownership plan, and what what are some issues related to the all those things so there's things that we're going to talk about in the podcast for that and then if you're already an ESOP there are things that we're going to get into about more about what you should be thinking about what are some issues related to post ESOP as well and just working through um

[0:40] Particular issues that are going to affect companies at those levels so that's what this podcast is all about thank you for listening today if you're brand new to the podcast check out our website at journey to an ESOP. Calm and you can find out about more about the the podcast and how we help others um in this space so with that I'm going to kick off the podcast today with this. And.

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[1:15] To find it hard to take when people run in circles.

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[1:29] I don't know if you know where this song came from but this is kind of coming out in 2020 but this was all Tears for Fears when I was a kid growing up and this guy Gary Jules I think did a phenomenal job with this song it's really good and I I normally do movies and stuff but this is kind of just been. Hitting um some of our playlists at home and I thought wow okay why do this mad world so so let me just start with this um the topic today, is esops.

[2:02] In a mad world and the Mad World part is is the world of esops in itself I believe is a bit mad like it's a bit like crazy in the way things go. Because there's such a variation of how things are perceived and this is really going to more or less hit.

[2:20] On the 1 of things which is really the pre-op side more probably more so than the other side which is um kind of I would think more normalized um what I'm getting at for the topic todayis understanding the ESOP transaction side of things and how variant how varied that is depending on who you talk to and it really isthe reality ofum. The space that we live in for for various reasons and so part of what I I want to get into today is something that we've addressed in different ways but it's just the idea that.

[2:56] If you co if you go ask somebody about hey how does this work. With an ESOP transaction you might get a lot of different answers and what I wanted to talk about is just understanding.

[3:10] What I would say in this podcast is going to be more of the. What I would say is a baseline And when I would cover today is the Baseline of what your expectation should be in an ESOP transaction. So that it's not this mad mad world and it's not this crazy um like what to expect kind of, issue of your like just trying to work through um your your process of really understanding it the reason this is so important.

[3:39] Is that you could be thinking oh I've talked to these people and this is really not going to work for us but then as you get into this um it you may find it may work for you in terms of of being a viable option in the sense of what you're looking to do with your business and that's really. Part of what I believe our mission here in the podcast is to be a strongvary unbiased educational resource to so that companies can look at this and say hey this could really work um so the Baseline version of this is going to be hopefully really helpful to um to help kind of figure out does this is this something that will be right for you.

[4:17] So as we start talking about this why let me ask let me just go through the first part of what I wanted to kind of cover which is why why is there so many. What do I mean by variation why is there so much variation too so what do I mean by variation in ESOP transactions but first off um when you do a transaction.

[4:37] You have typically some different people that play different roles in the in the transactions so so I've talked about this before so I'll just kind of run through this relatively quickly you have you know uh the client who is represented by the shareholders and so maybe sometimes the key people and in those in that regard what's happening is they are.

[4:59] Looking to sell their company and an ESOP is kind of something that they're they're anticipating is possibly an option in that they they're going to engage somebody to help them with that process and that's usually going to be somebody that's what we were going to call sell side advisories sell side advisors that help in that process. And the sell side advisor role probably is the reason why they're so much variation because that can be played by a couple a lot of different types of of, of uh professionals and and different types of disciplinary people that are in different disciplines that apply themselves to solving that problem are the issue. And the issue here is how do I how does this even work like what what what are we going to do to go through this process so. So let's just say kind of a predominant number of deals are done by cell site advisors that are really Investment Banking firms that work through the normal m&a process that they would go through so that's kind of like. Baseline.

[5:54] Would be like that that's kind of what you can probably expect if you go ask people this question like should I be an ESOP and if you're engaging somebody as a sales site advisor um you'll know that they're more of a sell-side advisor in how they're going to get paid in the in the transaction so first question is how do you get paid in the transaction and they're going to come back and say this is the success fee this is how we go through our modeling or feasibility they're probably going to charge you some fee up front for feasibility you're you're probably going to be then obligated to keep going with them all the way through the process until you close and then they charge you a 6S fee at the end. So that's 1 type of cell site advisor another type of cell site advisor. Is maybe an attorney who puts deals together and they really run the whole deal and they kind of have their own processes that go they go through and that can again vary depending on the attorney and how they are working through uh the structure of the deal and in my experience sometimes that can be um light on the financial side.

[6:56] And moving deeper and quicker into the the deal part of the deal so getting like everybody on the team on your side, and then everybody on the team on the uh the buy side which would be representative of the trustee the transaction trustee, the valuation advisor on the transaction side or the buy side and then of course the attorney on their side. So if an attorney is running it I think that that would be um. Obviously different than an investment banking firm right they're going to probably um just try to build build a really good ESOP deal um but probably lighter on analyzing the data upfront. Andtalking about that in a little bit. Deeper level of just you know maybe there's some mistakes in a sense of not digging deep enough at the front end to make sure that there are some things that that need to be kind of put together, on a on a very solid level for sustainability purposes so I'll get into that in a minute, then you have the other way to go which is like more of a a financial advisory practice that does ESOP work and transaction work so.

[8:03] I would say that the first thing in this is that they're not likely going to charge a success fee they're going to come in and and do probably a lot more financial analysis at the front end um for feasibility purposes and then it's either yes or no do they do support related to bank financing um yes or no how deep do they get into the to the feasibility modeling processes and that can kind of be a lot of different, you know types of forms and so it could be. Uh CPA firm doing it it could be um more of an advisory practice that specializes in this but I think the distinct difference between the investment making firm the attorney doing it and this in this category is there they're not going to charge it a a fee on that end and they're going to bring more of a team together as it goes to the attorney side of things when you get when you need the attorney involved in the process so so laying that out this is 1 of the reasons I'm kind of coming back to like the idea that this is the Mad World of esops because you can kind of see the way I just lay that out that there's a lot of varying approaches to this, not only that there's a lot of varying costs in the process of doing this and um there are pitfalls and pros and cons to all of that that we're going to cover in this in a lot more depth but I wanted to kind of lay that out as our foundation of establishing this mad world of esops.

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[9:41] Familiar facesWorn out PlacesWorn Out facesrightand daily races.

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[10:07] Just a quick excerpt from this song to kind of bring us back to some focus on going through the roles of the people that are actually putting a transaction together obviously is an important part to start with I think foundationally um the idea um of the Mad World of esops is going back to the idea that the variation can be. Shouldn't be so all over the place but it really is and and I know that and I think that's part of what I say um about this message of of. The podcast today is really about. Digging deeper um and asking a lot of questions at the front end you know at some point you can overanalyze anything so I don't mean at that at that level but really understanding, um I think the bit the the key would be to understand the who you're working with, and asking questions around the very beginning to the very end of the process and then even after that, and really what to expect and that and those questions first are are appropriately going to be asked to whomever you're talking to on the Southside advisory part um and just keep in mind again the the people that you're getting involved with. Um that really does matter what discipline they are walking professionally in in what they bring to the table.

[11:24] So with that the variations I want to kind of cover some things that just as we start with that as the foundation the variations in fees right we just kind of touched on that variations variations in structuring the deal and closing the deal and the and just for the the variations of the process so so. Under understand thatumthe the way that the the cost structure worksreally kind of depends and. I think the thing that sticks out to me the most and when I look at cost of an ESOP transaction and not as much the cost of ongoing ESOP support from a compliance perspective but more so for. Specifically the transaction. Is that there's the there's a blurriness to the idea that is an investment banking manage or merger and acquisition deal versus a just a a transaction itself that's we're creating a retirement plan. And so I think that that's probably the most pivotal place where you see costs being being all over the place.

[12:26] And so if somebody was going to charge you a percentage of the total purchase price versus a total advisory fee obviously they're going to be 2 different things. The other thing is is really understanding um the a budget towards the beginning and the end like what am I going to pay when am I going to pay it how am I going to pay it what are the particulars related to that nowin esops. The esap professional Community there are absolutely some very valid things to do to offset costs. That are from a tax perspective that are that are totally legitimate, and need to be think thought about as you build your your transaction and your structureum certainly 1 of the things about this is really important is that you find a. Um if your CPA doesn't do esops you find a CPA or a tax professional and I I'm just going to kind of say that I do think tax attorneys obviously are really really brilliant, um but I would also want to kind of compound that or um I guess round it out in terms of the planning side from a tax perspective with a tax CPA that really understands, retirement plans and understands um.

[13:40] Uh the kind of the way that that works when it comes down to escorts and corpse and all that so so tax plan is going to be really an important element of the original initial planning and the point of this is that there are some ways to use that to offset cost. That are absolutely legitimate now the 1 thing I see though too is is using things like say the 1042. Which is the capital tax deferral for a company or for the shareholders. To try to justify the costs and expenses of the transaction when the 10 this is where it gets twisty right it's not like the 1042 is or isn't it's just to use that to kind of push that into the deal um because they're the. Advisor is going to get you know my thing is if the visor gets paid on on putting a 1042 together. They're and they're selling you something in the end then you really need to ask the question do I really need this. And working through the process of I think what I would do in my advice is is have them run all the analysis about in regards to all the different types of scenarios that you could be. Experiencing so for instance um if you are truly like an S corp and they're advising you to convert from an S to a c.

[14:55] And that because you have to do be you know be a c to get the 1042 if if they're advising you do that. Then make sure that you've done the analysis around being an ESOP S Corp and an ESOP Corp. As the company at the company level and then do the analysis on the shareholder level and just kind of validate that the 1042 is going to work so keep in mind that the the tangent I'm on a little bit is just the understanding the variation and costs. But the way that that sometimes an adviser will move a client through the costs. Is say don't worry about it because we're going to do this this and this and and they're going to quantify them because they're easily con honestly they're easily Quantified because we're looking at. You know some estimate of value and we're going to look at some estimated you know obviously capital gains tax and there's other ways to to do that so. That can be a very tempting strategy to say hey don't worry about the variation in cost rightthe other thing that I've seen.

[15:54] Is that again the the idea of a large transaction versus a relatively small transaction and what and what does that mean you know in terms of the number of employees. The type of entity it is the amount of the company's ibida and say Revenue in ibida um are adjusted IBA all of those things are going to be helpful but when you look at, the variation in terms of size uh and scope of an ESOP transaction 1 1 thing too is important, is to understand that there are people inESOP professionals that are look at a transaction realize they're not going to be able to charge you that much.

[16:32] As in the transaction because it's relatively smallin their eyes and they'll be like hey it doesn't really work. And that's not a good that's not good advice right because because there are very small transactions that can work but you just have to be very very clear, on a couple different levels in terms of analyzing that and so just just keep that in mind and I and that's why I kind of always say on the podcast you know send us an email through our website at journey to an ESOP calm because it's. You know what kind of work through that and give you a real, unbiased approach to that's what what is too small and it's hard to kind of say exactly what that is or a parameters around that um and it really kind of depends on a lot of factors it's not as simple as you don't have enough employees or your ibida is is too small so in that variation of things is is making sure and it comes and this is why I started with the who's leading you through the the process because who's leading you through the process can make definitely an impact on how you are experiencing the the transaction going forward and ultimately as we as we keep going through this you know 1 thing that has has kind of happened in my career in terms of doing ESOP work is just really not just.

[17:48] Saying it but really doing it but to enjoy the journeymeans to me a lot more than just my coffee mug and Go in different places it means that I'm really going to enjoy going through this process of of selling the business and all the things that go along with it and I think part of that is is become so missional in the podcast so come and and put your email on the the website because it is important to get good information um that's unbiased and objective, um that could help you really work out a a really good transaction.

[18:22] Hard to tell you I find it hard to take when people.

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[18:47] What I'm getting at is is the, I understanding that there are in the industry of doing ESOP work there are people that that the same things just keep happening over and over again and this is going to come down to the variation in in Deal structure and the variation of deal structure what I'm what I'm getting out there is simply how a deal gets put together and and how there are certain things that happen in a deal sometimes that are not really helpful and not really.

[19:20] Well planned or not maybe they're well planned but they're they're really not.

[19:25] Planned in a way that helps the company to have this this long-term sustainability which is part of the part of the question mark as you go into an ESOP transaction is how are you maintaining the sustainability of the business because what's what's happening is you're creating debt on the balance sheet that debt has to get paid off and so and and it really is important to, make sure that that is done in a way that isis very balanced and creates some margin for error in the future now. When I talk about this it comes back to the same thing I started with in terms of like who is leading the transaction and and there are. Then I'll give you kind of more of like a a generalized case study there are companies that get out of the process and they realize they've they've changed from an S corporation to a cc Corporation simply because they needed 1 they wanted to get the 1042. And they've so they've lost that exemption part of it they also have over in their analysis of cash flow over deducted and created if they kept on maxing out the 25% limit of payroll. Then they have created either an an overstated cash flow to repay the debt that got created.

[20:37] Or they are at the same time ma there if they're going to do that they're going to maximize the repurchase liability and that same sense because they're they're putting more and more shares in to try to keep up with that and keep their cash flow as high as possible meanwhile um so that was a problem in their analysis meanwhile they they came in they got a higher valuation and they should have gotten because they submitted a forecast that wasn't real real um in the sense that wasn't achievable. And so I know companies that are dealing with these specific things they got led into that process of this type of structure.

[21:12] And it was very appealing for for a lot of different reasons right but it was sold in a way by the ESOP professional that did it in a way that really tempted the the owner now they didn't know any better too because they're like hey we're we're just trusting the people that are ESOP professionals and so this is why this this episode for me is so important and and I I'm not here to be the like whistleblower of the ESOP Community but I am trying to kind of slow people down so that they asked really good questions from the beginning to the all the way to the end and then after the ESOP and so, obviously what happens like in the hypothetical that I just gave you is that now the company if the forecast is not achievable they're in the first year and now the shareholder and this could be like a partial or it could be a 100% but the shareholders still involved because they're they have a a seller note. Uh they probably have some some hope hopefulness around a warrant in the future, the CFO is there trying to manage all the the cash flow responsibilities and if they're off on their forecasts the first thing that's going to happen is they're not going to be able to, either um achieve the the debt amount of payments they're going to have to come out of the business. And if it's if there's a a bank involved I mean they're going to be they're going to be missing Covenants. In addition to that they could be missing covenants and also they could be having other third-party Financial, um issues as well like bonding companies that kind of thing and the point to this.

[22:41] Is of course nobody wants to be in that in that position andwith structure being so important the the, the idea is that you the company could be in a position at some point then to have to unwind what got created not only did they spend all this money on this this process with the the people they've also created the expectation with their employees. That this is what the company is or an employee owned company now right and so it can do a lot of damage from that perspective, and and then meanwhile everybody's trying to figure it all out after the fact so so that's why it's so important to understand and I think the biggest thing I would I would stress in this section of the structure side is is when you're looking at the analysis. If there's a weird red flag in like okay something doesn't seem right.

[23:35] I would I would first off be questioning at at at every level I would do a lot of scenarios in that structural planning like what if we what if we're in s versus a c. What if we have this percentage versus that percentage what if we structure the debt this way versus that way do a lot of scenarios if you're not doing a lot of scenarios and stress testing all of those things for the company's cash flow.

[24:00] And whatever that is resulting in the shareholders you know cash flow benefit if you're not doing that then you could put together something you're. ESOP professional leading you through the process could put something together that is um a problem and sustain all problem and don't expect here's the other side of things like this is this is the part that I still don't totally understand because all trustees are not created the same.

[24:24] Don't expect the trustee and their buy side team to to find issues with that.

[24:33] It's not always going to happen and that's not going to be just a a a endall filter to throw stuff against the wall and say I hope if they if they signed off on it then it should be fine right don't expect that because again there's variation in who the trustees are and who the sell side advisors are and all of those things get mixed together so it's really important um I would say the biggest thing in this is err on the side of conservatism. Do not get overwhelmed by the potential tax benefitsbecause and at the end of the day something that is really. Great on the tax side could not be the best business decision you know so it's kind of like the age-old conversation around bonus depreciation and be like well I could buy. 10 million dollars of equipment and bonus depreciate all that this year and have a big reduction in my cash flow or my incomebut do you need the ten million dollars equipment. You know so ask yourself does this make good business sense.

[25:32] In in respect to all of the people that are involved in respect to all the potential benefits ask yourself is this a good business decision, because everything else around that business decision if that was the core you're making a good business decision that was the core decision you're making everything around that there are tax implications there's employee implications there's obviously um company considerations your your banking considerations all of that around the circle is part of like understanding is this a good business decision and that's where the scenarios are really helpful.

[26:08] 1 of the 1 of the deals we've been working on has been mostly to try to kind of nail down how does this decision affect the the key people. Now keep in mind the way we're talking about it it's like I'm not we're not saying how do I get something to the key people and then make the decision on the ESOP we're talking about how does the ESOP business decision affect the key people. And this would be in this situation is relative to the stock appreciation rights. Agreement and how that fits together with the other elements of the deal with with the structure of the debt. The valuation um the the banking situation in this case the bonding situation all of those pieces fit together because the business decision itself, is goodand then a scenario here now we also don't know the future so we have to test the the, future cash flow forecasts which is what we were doing and this situation to say a what if it really goes off the map like we just go down for whatever reason, work a check in the box right we're still okay on cash flow we can still service the debt we can still make sure that all the obligations are taken care of we can still promise a very good future for the key people and all of these things are kind of being checked off that kind of rein um reinforces or revalidate um or validates the the key business decision itself.

[27:27] So so that's that's kind of important for. At the at the center part of this podcast is really understanding that the structure is going to work and this is kind of in spite of whatever you're paying on the fee side and how various how that varies and all that so. What that leans into is what I believe is is really understanding. The process that you're going through with your advisor. Again these vary and 1 of the things I'd be asking for in the process is what do you actually producing, to help make these this business decision the best possible way we can make itif it is just simply a very, cool PowerPoint presentation that is confusing some ways right I don't really understand it and can't be used to do a lot of scenarios then I'm going to tell you that that process could lead to a a bad structure and difficulties in the future for the company 1 of the major reasons that people look at esops is because it creates a long-term.

[28:32] Pro uh long-term benefit to the employees. Without the disruption of a third-party buyerthat gives the shareholder flexibility to manage through their transition on the ownership side and on the management side.

[28:46] The worst thing you can do is is do something to really violate that plan. And if you don't do this really well at the front end that, potentially could happen is the pointso keep all that in mind as we as we go into um the, those parts and pieces of understanding better if this is going to be something that works for your company or not.

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[29:33] Look right through meso what is the lesson so as we close on this podcast today.

[29:42] What I wanted to do is close on the ESOP closing so that's going to be our our. Where we're going to talk about the the variations in ESOP closings and how they can vary. And they can be maddening they can be frustrating and they can be difficult and if you haven't gone through 1, you know then then just take my word for it if you have already gone through it then yours was either smooth or maybe not so smooth or maybe really frustratingand as we talked about this the closing itself is in an ESOP transaction it honestly has come somewhat similar or should be somewhat similar to just a normal m&a transaction. In that you're selling your business.

[30:23] The buyer has representation you have representation then if the if this deal is being financed by a third-party Bank they're going to have representation so as we think about the ESOP closing there's a lot of obviously similarities there that obviously are going to createwith more people involved in doing this is going to create some complexitynow layer on top of that, that it's not just a a closing what we're what we're actually doing is we're setting up a an ESOP trust Employee Stock ownership trust that's going to end up eventually owning the shares and that's going to have to be everything's going to have to be compliant. With erisa. And making sure the Department of Labor is we we've set up everything correctly so so kind of if you if you start thinking about this group of people that are going to be working through this transaction.

[31:14] You're going to have your cell site advisorand the ESOP attorney and again sometimes that's the the same people because sometimes they're doing this type of advisory work. You're going to have obviously the shareholders being represented and so I'm just kind of working through the sell side you're going to have potentially their CPA you know your your CPA involved, because there are tax issues at a time of closing that need to be dealt with and might might have other advisors like for instance you might have the investment, um advisor if you're doing some kind of 1042 relatively involved but not deeply involved in the closing because they're really going to come in after the closing for, their work you're going to have in the closing process the trustee the transaction trustee and their advisor who would be some type of valuation firm and then they're going to have legal counsel. And then the bank's going to obviously the bank lenders and then their Bank legal counsel so. As I mentioned that I've just talked about 3 different ESOP attorneys and they're all going to be ESOP attorneys and that they they specialize within an employee stock ownership plan odisha and they understand what what obviously esops are because that's going to be really important in order for the documentation to get put together correctly and in order for it to um in order for it to be compliant and make sure all the all the parts and pieces are built together correctly.

[32:36] And as we go through the closing of the things that starts the closing process is your is your finalizing the the negotiated term sheet and the negotiated term sheet is where the sell side advisor is is sending off their offer to the trustee and their team and then both sides will will not only initiate the well the sell side will initiate the offer and the trustee will respond with a written counter offer so it's a written term sheet. And then that process goes back and forth multiple times and so there's a there's a little bit of a a normal Madness to that because there's. The requirement under the Department of Labor really is to show that this was a negotiated. Arms length transaction for adequate consideration meaning the fair market value purchase of the business. Now having said all that that process of course in the in the back and forth really in a sense kicks off the closing process because you can't really close until you want to you know what the the terms are and the terms are starting to get formulated in that term sheet.

[33:41] Now in that process where it can be varied and maddening is is the process of going through the back and forth with a trustee and their team. And there's no real solid book on this like when should the trustee respond. I would say that for for most deals I think the trustees should take about a week normally. What they're doing after they've received the negotiated term sheet seller offer um the initial offer I mean. Is they're going to meet with their team and their team includes of course the valuation firm and their attorney and they're going to work through, um not only the financial part of that document but also the legal side of that document and work through what are their what their response is going to be. And most of I would say most of the time the trustee is going to probably get some level of a range. A value and a range of responses depending on what the initial offer was and how they're going to respond now, keep in mind this is after a lot of the discussion and a lot of the things have been put together in due diligence. And if you back up before that in the site visit and the confidential information me memorandum so a lot of this. Uh the the details have been provided so this is really just the meeting to help them pull together all their thoughts and anything that they see in the term sheet that they're wanting to make sure that.

[35:03] Um either agreeing with or not agreeing with flat out and or just the range so this process of counter offer and um, seller offer counter offer back and forth it's just part of it but again there that could extend the longer time that can also create some some.

[35:22] Pitfalls in moving through the process of closing because this is definitely connected to when you actually start putting together the documents themselves, and so everything kind of works towards you know this timetable and I I mentioned this but I want to say it again like the timeline needs to be there needs to be a definitive closing date in the process so in order for what we're really wanting to doum as much as this isyou know, interesting stuff going back and forth and all that we want a smooth smooth smooth transaction we want a smooth transition from a non- East up company to an ESOP company and as I think about the the process of going through that transition, the transactional course is 1 of the steps towards what we have to do and and I just I just prefer in general and maybe this is crazy but I just prefer a smooth. Closing process so as much as as everybody can work together right but somebody in that group and it needs to probably be the sell side advisor needs the quarterback that processthe other individuals as I've mentioned them in the closing process need to get on board with the process of doing this, um and and kind of commit hey this is the closing date we're going to commit to that closing date so that there's a, um a strong collaboration and a strong working uh process together to make sure that you can accomplish that.

[36:50] In in my whole idea of how this varies between closing to closing you know fundamentally and. Theoretically it should pretty much go smoothly if everybody is really knowledgeable about what they're supposed to do and and the teams have been hired correctly so theoretically that should happen now where does it break down where is the variation where does this create some potential frustration.

[37:14] Well there's a couple things that I would say that in general number 1 if if, there were some expectations that were on the either the buyer side saying to the seller side that weren't, disclosed early in the process and if the sell side did the same thing to the buyer side and then those expectations or considerations got you know brought up later in the process of doing the closing then that can be so so frustrating you know and there might be an expectation to. And maybe the bank has some too right they might have some certain opinion legal opinions that they're requiring um so the other side has to be considering what what needs to be done and how much time it takes to get those things done and everybody has you know as a professional a certain process that they're going to go through and and and honestly we all want to respect that so where it can break down is first off those those expectations are not communicated clearly. 1 of the things I try to do and I like to do is throw out that on the front end of when you start first start working towards an ESOP closing. Is have an orientation and a sense an orientation meeting and a meeting of expectation with all of the individuals and, that includes the shareholders all the attorneys the bank, the banker the trustee everybody involved evaluation firm obviously the client and lay all that out clearly and let everybody have an opportunity to say this is how what they're trying to accomplish or what they what their role is going to be in the process.

[38:41] In as soon as a term sheet is going right there's there's definitely the opportunity in that first meeting even if you're not fully, um working through the term sheet or haven't fully worked through the term sheet there's an opportunityto, bring things out in that term sheet that are relevant to all the other things so it's it's really helpful to try to get that done um and at least the expectations I'd done up front and then work through that um and I regular basis and so part of that is just as many um you know populating at least a meeting a week I think is always helpful to get everybody communicating about what needs to be done and when. So that it makes sure everybody's got what they need and that make sure that the process is working through to in order to avoid you know a frustration and a Madness around an ESOP closing just like anything else that we've been just talking about.

[39:37] Now 1 of the things that can happen and this is just the real world right as you can have. ESOP closings where you havepeople that have worked professionals have worked together on Deal after deal after deal and I'll just tell you I think that deal is going to go pretty smooth. Considering they know everybody kind of knows what everybody's supposed to do and they've worked with each other before there is a little bit of a variation in terms of of some of the say for instance trustees, their expectations some of the valuation firms that work for the trustees their expectations and some of the attorneys that represent the trustees. Certainly on their side they're they're they're going to have certain things that they're the way that they like to put the deal together and what's more important to them as they reflect upon the risk they're taking from a fiduciary standpoint.

[40:27] And that's varied like let me just say that that is varied and I you can almost asked some of these initial questions when you are hiring your trustee to see what. You know what they're all about and what you know what really is what sticks out to them sometimes and this is just the way it is sometimes some things that you think are really. Important to 1 trustee are not as important to other trustees. And of course their whole teamso it's really important that you understand as you're hiring those teams have they worked together before, and then what sort of things that that stick out to them on closings this would be a nice open-ended question that seemed to be an issue for them so let me give you an example some trustees absolutely have to have fiduciary Insurance bound before the closing is done.

[41:14] And they will not close if the fiduciary insurance is not bound there are other trustees that are okay with the agreement to get this to get the fiduciary Insurance in time um, where you they will still closed without it but knowing that it's in process of getting bound. So there's just a like a combination of those things that can be again they stick out now on the sell side too. There might be things that the shareholder and or the selling the sell side advisor or even they um you know even the other advisors in regards to that like that that will want to review things a little bit deeper or they want to jump in and do things so so I think that that doesn't that goes without saying too that needs to be laid out very clearly what their expectations are and how they go through a normal closing.

[42:00] So that they're they're seeing eye to eye and really just want to try to I think overall try to stay on the same page throughout the processnow again bringing the banks in and the attorney and you have a whole another level of requirements and so having said all that I think the main thing is is is. Every everybody really will, feel better if it is a smooth trans transition um if if we can move from so much variance to more standardization that would be great but because we got all these different people involved in different levels with with different ways to go about this, there is going to be some and that's the reality so I think that the main thing is for those that are listening. Just be paying attention asking questions and understand that this is this is not, the closing can be so frustrating sometimes and it can also go very smooth so this is 1 of those things where you just want to um be as prepared as possible.

[42:54] And once it's over um we have been talking to a client today like once it's over. There's this sense of like okay I can go back to my my day job so it is um. A lot sometimes on the on the closing side so from the beginning to end I think the main things are just to stay focused as we as we said and hiring the people that you feel really do represent you well with all these different considerations that we've just laid out, and again my goal here is to help everybody start thinking about their ESOP early and I really just ultimately want everybody to enjoy the journey that they're on tors and Esau thanks so much for joining today and we will see you on this the next step on this journey to an ESOP.