IT Firms Getting Into ESOPs

Jan 12, 2017 | Timothy L. Stewart

Arlington, Virginia-based Phacil Inc. announced that it had set up and transferred ownership to employees through an ESOP in late 2016. The CFO of the Company, Mehdi Cerqaoui, stated that:

“It was somewhat of a natural progression for Phacil given our history, legacy and culture.”

According to the article describing the transaction, the owners of the Company were no longer actively involved in the business, but were interested in continuing to allow the leaders to run the company and have continuity for their employees. Of course, using an ESOP fulfills those goals perfectly, as described by COO Mark Cabrey:

“The same people are running it, there’s no new money coming in, there’s no new ownership, there’s no private equity firm telling you what to do – that fits well, obviously for us being the people running it, but also it sat well with the owners exiting.”

The article notes that ESOPs have not historically been very common in IT firms, but notes that another IT company, JTG Inc., also went the ESOP route.

We continue to see ESOPs proliferate many different industries, mostly through word of mouth. That is, because succession planning strategies are discussed within and among owners in certain industries, you often see a “snowball effect” of ESOPs in certain industries (e.g., craft brewing).