DENVER, CO (January 8, 2015) – The Department of Labor has filed 28 lawsuits, recovering more than $241 million, against businesses offering employee-stock-ownership plans. Inaccurate company valuations are the primary cause. In the Q4 Mergers and Acquisitions Advisor report by FMI, Curt M. Young, managing director for FMI Capital Advisors, Inc., provides recommendations on how to avoid legal action by the DOL.
Young provides insight into what the DOL expects from ESOP Trustees in his review of a $5.25 million settlement with GreatBanc Trust Company in 2012. Specifically, GreatBanc failed to investigate an appraisal of Sierra Aluminum’s value allowing employees to purchase shares for more than fair market value. This resulted in a breach of fiduciary obligation under ERISA.
“A common practice of basing valuation on projected cash flow is speculative. It generally not be given much weight when valuing companies in highly cyclical industries, such as engineering and construction,” says Young. “Appraisers with industry experience place greater value on longer-term performance measures including the company’s management and competitiveness.”
Complementing Young’s article is “Building Value Through Acquisition” by Daniel T. Shumate, associate with FMI Capital Advisors, Inc. Shumate demonstrates how a strategy of acquiring businesses that poses rare, hard-to-imitate or imperfectly-mobile resource can improve the long-run economic performance of companies. Additional strategy and scenario planning techniques are covered in the report with an excerpt from “Visionaries: How today’s leaders are using future contingencies to plan strategically.”
To download a copy of the Q4 Mergers and Acquisitions Advisor, click here. For reprint permission or to schedule an interview, please contact Jenna Luvin at 303.398.7202 or Jluvin@fminet.com. Subscribe here to be emailed future copies of the Mergers and Acquisitions Advisor.
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