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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, cash flow, and goals.
Typical size
  • US$10 million - US$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.

Hypertherm’s founder and majority owner desired to transition the company to a 100% ESOP ownership for the purposes of succession planning. 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 Pricoa Shelf facility, under which the company could issue additional debt as it deemed prudent. We also crafted an amortisation 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. 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 Pricoa 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
Pricoa Private Capital (‘PPC’) is a trading name of PGIM, Inc. (‘PGIM’), the principal asset management business of Prudential Financial, Inc. ('PFI'), and it is also a trading name of PGIM Private Capital Limited and PGIM Private Capital (Ireland) Limited. In the United Kingdom, information is issued by PGIM Private Capital Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Private Capital Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 172071) and registered in England No. 1331817. In the European Economic Area (“EEA”), information is issued by PGIM Private Capital (Ireland) Limited with registered office: Pramerica Drive, Letterkenny Business and Technology Park, Letterkenny, Co Donegal, F92 W8CY, Ireland. PGIM Private Capital (Ireland) Limited is authorised and regulated by the Central Bank of Ireland and registered in Ireland under company number 635793 operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Private Capital Limited in reliance of provisions, exemptions or licenses available to PGIM Private Capital Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. These materials are issued by PGIM Private Capital Limited and/or PGIM Private Capital (Ireland) Limited to persons who are professional clients as defined  under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II).