Brown counseled O'Brien that while the transaction could be done from a legal perspective, it would require assembling a highly specialized team of financial professionals for all the moving parts. Looking back on the transaction, O'Brien says putting this team together took no small amount of time and skill.
The first decision--which attorney?--was easy since Brown was an ESOP specialist and the only lawyer who had assured O'Brien the transaction could be completed. Brown's task was to serve as the architect of the ESOP. He not only had to draft the documentation that created the ESOP but also had to define and engineer the relationship of the ESOP to the 401(k) plans held by each of Print Management's founders.
Next, O'Brien needed an evaluation specialist. Specifically, if the ESOP was going to purchase common shares from Print Management Partners, it needed a qualified opinion about what those shares were worth. For public companies, this is not an issue since the shares are valued every day by the trading that occurs in the market. But with a private company like Print Management Partners, it's not so cut and dried.
O'Brien selected Greg Heebink of Brownstone Associates Inc., a financial consulting company in Milwaukee. While competence is certainly a factor with any evaluation specialist, so too is chemistry because the valuation consultant must rely on input from the company's officers and shareholders to do his or her job correctly. If they can't see eye to eye, the job can't be done. With Heebink, the chemistry was good.
Next, O'Brien needed a brokerage firm to act as the custodian for the ESOP stock. O'Brien chose Smith Barney. For this old-line brokerage firm, O'Brien's deal represented a perfect way to make some money the old-fashioned way. After all, Print Management's current and future employees would need to either establish or roll over their 401(k) plans somewhere--and if Smith Barney was already the custodian of the ESOP, it would have an edge in getting Print Management's 401(k) business, too.
Finally, O'Brien needed a good accountant. "Who doesn't?" you say. But with an ESOP in the picture, the tax issues are even more complex. "We wanted a partner on board who could help us think through the strategic issues on an ongoing basis," says Brown. Incidentally, O'Brien also needed a 401(k) administrator to keep track of employees' stock purchases. Accountant Jeff Weidner of The Accountants Group Inc. in Lincolnshire, Illinois, also an ESOP specialist, filled both roles.
By April 1996, about four months after Print Management Partners was incorporated, all the pieces were in place and the transaction could be executed. O'Brien and his partners then instructed Smith Barney, the custodian of their 401(k) plans, to purchase shares in the Print Management Partners ESOP, for which it was also custodian. As a result, cash ($427,000 in total) went from each 401(k) to the ESOP and from the ESOP into Print Management Partners' bank account. Then stock certificates in Print Management Partners were issued to the ESOP in the names of each employee making the investment.
Tricky, yes, but when it was all done, O'Brien and his partners had successfully tapped their 401(k) plans without any tax consequences, funded their new company without giving up equity or bringing in outsiders, and kept the balance of their savings intact.