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ESOP's fables #4 - ESOP for a sports equipment distributor with an international reach

ESOP's fables #4 - ESOP for a sports equipment distributor with an international reach

We like family businesses. We like family businesses, thanks to which we can do something useful for our health! And you know what? We are very pleased when we, at HAVEL & PARTNERS, are an example for such businesses.

It all starts with the client's decision

I'm entering a beautiful new lobby of our long-time client. I’m opening the door to the meeting room and am greeted by a young and energetic man with a smile on his lips. Since I've been here countless times, I'll ask him right away: "Do you also have the doctor here who always prescribes such a good mood?!". 

He laughs back at me warmly (perhaps a little out of sympathy) and says: "That's exactly why I wanted to see you; it's going to be your job!". "I like the way you set up the "partnership" in your firm - you reward long-term and skilled colleagues for their commitment and loyalty, and that's exactly what I would like too!" he continues breathlessly. 

Some time ago, we created a Family Office structure to provide for his family, taking into account future ESOP implementation (or multiple ESOP implementation options). So, this is not a new topic. We've known each other for a long time. I know that if he opens the topic now himself, it is with deliberation and inner belief that he wants to devote considerable time and full commitment to it. That's the only way he can do it. And that's what a project like this needs.

The client and its requirements

His aim was to motivate and reward three key colleagues who have been with him in the business since the beginning, with the possibility of involving other key and proven co-workers in the future.

The reward for managers was to be the opportunity to acquire a certain share of the difference in value by which the company’s performance would increase over time. The motivation was to be the possibility of intensifying the involvement in this ESOP in the future (possibility of increasing the share concerned and motivating other co-workers). 

We knew that the set-up of our ESOP at HAVEL & PARTNERS would not be optimal for this purpose. The client agreed and asked if we could come up with alternatives on how to set up an ESOP appropriately for his business sector, asset structure, the company culture, and his life mentality.

By a solution the whole story continues

Therefore, we had to conceptualize the whole process from the beginning and divide the project into (1) analytical and (2) implementation phases. This is not new in our projects (we have already written about it); in any circumstances it is necessary to look at the situation comprehensively (not only from a legal prospective, but also in terms of taxes and accounting). However, this was not new to the client at all - like to any other fair and passionate sportsman and businessman, a detailed training plan prepared in advance is a matter of course for him. 

We therefore prepared detailed proposals for an ESOP design and implementation, including the pros and cons, a detailed step list and schedule for implementing each step. We presented the entire analysis to the client and managers. The client, in agreement with them, approved of the "specialty" already mentioned in our previous articles on ESOPs - the issue of innominate (i.e., unnamed) securities. 

Absolutely crucial and essential was the possibility of very flexible joining and exiting the ESOP, according to the will of individual managers. Last but not least, the client's firm confidence in our ability to set up issue terms, subscription agreements and other related documentation with precision and at the highest level also played a role.

The entire implementation process took no longer than three months. Sometimes it's good to take two steps back before you take a step forward. Take a breath, look at things with perspective and make a plan so that the step forward is bold, quick, efficient and flawless.

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ESOP's fables #6 - ESOP in a major investment group

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