ESOP Financing

You may be familiar with the notion of an Employee Stock Ownership Plan – but what is ESOP Financing?
Providing your employees with a stock ownership plan is a great way to reward them for their hard work, and truly gives your team a stake in the company.

That being said, creating an employee stock ownership plan is not without some challenges, and many businesses must buy out majority owners before being able to provide this benefit to their employees.

That’s why it’s essential to have a financial partner who understands your business, cashflow, and goals.
Typical size
  • $10 million - $300 million
Typical uses
  • Purchase of majority stock
  • Transition to 100% employee-ownership
  • Establishment or expansion of Employee Stock Ownership Plan
Structural characteristics
  • Fixed rate
  • Secured
  • Unsecured
Issuer benefits
  • Relationship-oriented provider serves as partner for the long run as ESOP evolves
  • Experience across a variety of industries
Metal cutting solutions manufacturer receives financing to transition to a 100% employee-owned company
Hypertherm, Inc. makes advanced metal cutting solutions for use in a variety of industries, including shipbuilding, manufacturing, and automotive repair. The Hanover, New Hampshire-based company is proud of the role its 1,300-plus Associates have played in its success, a pride it reinforced in 2001 when it created an employee stock ownership plan to hold a minority stake in the company’s stock.

Over a decade later, Hypertherm’s founder and majority owner desired to transition the company to a 100% ESOP ownership for the purposes of succession planning. To help secure the necessary financing, Hypertherm’s ESOP and financial consultant, Verit Advisors, introduced them to us. We had worked with Verit in the past, successfully structuring and financing other ESOP-related transactions.

After assessing Hypertherm’s needs and financial profile, we were able to structure a financing package that included a senior secured term loan as well as a Pru-Shelf facility, under which the company could issue additional debt as it deemed prudent. We also crafted an amortization structure that fit their cashflow profile and existing debt-maturity schedule.

One of the key challenges was finding the right combination of senior debt and subordinated seller notes that would allow for the full buyout of the founder’s majority stake, while not over-levering them to the point of financial risk, or limiting their ability to grow in the future. Another challenge was the structuring of the debt so as to not subordinate existing claims, while retaining an investment grade credit rating and associated pricing. Our financing package was augmented by shorter-tenor financing from the company’s bank, which provided a senior secured revolver and an additional term loan.

A strong working relationship between the lenders allowed for a constructive negotiation with an outcome satisfactory to all parties involved, most importantly Hypertherm.

To finance a 100% ESOP conversion that would support its long-term strategy, Hypertherm chose us for our demonstrated expertise in ESOP transactions, the flexible structuring of our financing package, and because of the relationship-focused approach that met Hypertherm’s financing needs.
“The team at Prudential Private Capital spent the necessary time to get to know Hypertherm and our business. They were able to provide financing that met the needs of multiple stakeholders, and were a pleasure to work with.”
Carey Chen, Vice President & General Manager of Light Industrial Businesses, Hypertherm
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