Kurt Reisig, the founder and chairman of American Pacific Mortgage, had reached a point in his career where retirement seemed imminent. However, instead of opting for a traditional sale to a mortgage or private equity firm, Reisig sought a different path that would prioritize the well-being of his employees.

Concerned about the potential negative consequences of consolidation, which often include branch closures and layoffs, Reisig was determined to find a solution that would safeguard the hard-working individuals who had contributed to the success of American Pacific Mortgage. Reluctant to take any risks with their future, Reisig dismissed the idea of a straightforward sale.

Founded in 1996, American Pacific Mortgage is a prominent national retail mortgage company based in Roseville, California. With an impressive annual funding of over $22 billion, the company operates in 49 states and employs more than 3,500 people across its 200 branches throughout the United States.

Throughout its years of operation, American Pacific Mortgage has placed great emphasis on its core values and the individuals responsible for building the foundation of the firm. This commitment to honoring their contributions was a driving force behind Reisig's decision-making process.

The U.S. Census Bureau reports that baby boomers own a staggering 2.34 million small businesses in the country, employing over 25 million people. As these baby boomers continue to retire at a rate of approximately 10,000 per day, it is expected that within the next decade, ownership changes will affect 30% to 40% of businesses nationwide according to RBC Wealth Management.

Fully aware of this shift in ownership landscape, Reisig explored various avenues for transitioning his company to a successor. However, selling the business outright was never a consideration. Reisig recognized that while selling might yield financial benefits for owners, it often has unfavorable consequences for employees. With this in mind, Reisig ruled out other transactional options and has no regrets about doing so.

Ultimately, Reisig devised a unique solution by selling 35% of the company to its employees through a partial employee stock ownership plan (ESOP). This method ensured that the workers gained an ownership stake in the company in the form of shares. In addition to providing employees with this newfound ownership interest, ESOPs also offer various tax benefits for the company, the selling shareholder, and the employees, highlighting the overall advantages of this approach, as explained by RBC Wealth Management.

IRS Targets Employee Stock-Ownership Plans

The ESOP: Rewarding Employees and Securing Retirement

Employee Stock-Ownership Plans (ESOPs) offer a unique opportunity for business owners like Reisig to not only secure their own retirement but also acknowledge the efforts of the employees who have contributed to the business's success. According to the National Center for Employee Ownership, there are approximately 6,500 ESOPs in the U.S., benefiting around 14 million participants.

ESOPs: A Hidden Gem in Business Transactions

While private equity sales and mergers and acquisitions often take center stage, ESOP transactions are often overlooked. Kerry Winthrow, Senior Vice President with RBC Wealth Management, who has worked with American Pacific Mortgage, emphasizes the importance of ESOPs in preserving the legacy of a business while keeping it operational.

An Overwhelmingly Positive Response from Employees

Reisig explains that the response from his employees has been incredibly positive. They express gratitude, curiosity, and relief, knowing that this transaction protects the future of the company. As Reisig gradually reduces his involvement with the firm after the two-year anniversary of the sale, he retains the title of chairman but passes on the responsibility to new leadership.

Embracing Retirement with Confidence

With the company now in capable hands, Reisig looks forward to embarking on his retirement journey. He plans to indulge in more frequent travel while knowing that the business he helped build will continue to thrive.

Encouraging Business Owners to Consider ESOPs

Reisig strongly encourages other business owners who have reached a similar point in their life cycle to consider this type of transaction. By doing so, owners can achieve a stable retirement while allowing employees to become stakeholders in their own company, creating a win-win arrangement.

ESOPs are a remarkable option for business owners seeking a distinctive path toward retirement, ensuring that their hard work and the efforts of their employees are preserved for years to come.