August 3, 2026

2026 ESOP Market Trends: A Midyear Check-In

Every January, it’s easy to make predictions about where the ESOP market is headed. It’s much harder to look back six months later and honestly assess which of those predictions held up.

Bank lending appetite, private equity behavior, workforce demand, and legislative momentum all shift throughout the year, and business owners weighing succession options need a current read, not a January snapshot.

Most business owners exploring an ESOP for the first time assume the process and the market conditions around it are static — that whatever they’ve heard about ESOP lending or valuation a year or two ago still applies today. In practice, lending appetite, deal structures, and even who is bringing ESOP conversations to the table can shift meaningfully within a single year, which is why a periodic reality check matters more than a one-time prediction.

This episode walks through where several major ESOP market dynamics actually stand at the midpoint of 2026: bank lending conditions, private equity’s growing interest in ESOPs as an exit path, workforce and hiring trends tied to employee ownership, legislative movement in Washington, and where ESOP deal activity is concentrated by industry.

🎙️ Listen to the Episode

Video Transcript

4 seconds

Hello and welcome to ESOP Radio.

6 seconds

I’m here in Newport Beach with Trevor Gilmore, both of us in the same place at the same time. seems it’s a little bit weird.

13 seconds

But yeah, we first visited some clients, had a banking event that we spoke at. We even went to the Peterson Automotive museum.

25 seconds

What was your favorite car of Peterson? A lot of good stuff, you know. And it seemed like every quarter I found a new favorite.

32 seconds

Whether it’s a Batmobile, Saddam Hussein’s limousine or the Popemobile. I think I’d have to land on the Pope. What about you guys?

39 seconds

So much good stuff there. So for those of us who don’t know, I don’t need car buff Dennis to move, so. Yeah.

47 seconds

So he’s here visiting, and we went up to the Peterson Museum and basically did a tour, took all that, all the cars.

55 seconds

If you ever make it to LA and you love cars and that history, definitely check it out. They probably have cash for a couple billion with the cars are it’s insane.

1 minute, 4 seconds

A lot of priceless stuff. But you know Lamborghini mirror that kind of six out. Oh those orange beautiful. Let’s see him of course.

1 minute, 12 seconds

The Ferrari Enzo. They had that cool top down in the basement that was that still blue color. I mean, you know, that looks great.

1 minute, 20 seconds

It’s hard to just pick one. We did see one that was manufactured just down the road is here the zinger.

1 minute, 26 seconds

This is an A which sought the record at Laguna Seca That was pretty cool. And that’s a cool own set up. Yeah, it’s like a fighter pilot.

1 minute, 35 seconds

Exactly like the jet fighter there was. So. Yeah, that’s what area that’s made up in a Torrance, I believe.

1 minute, 42 seconds

So, yeah, just up the 405 and so on.

1 minute, 44 seconds

So we talked about ESOPs here and I went to a Bank events, spoke ESOP 101 to the banks and what their middle market commercial clients That was a lot of fun.

1 minute, 55 seconds

And we did that yesterday here in Irvine. And parking at All Things is up. And today what we thought would be fun.

2 minutes, 1 second

And today, by the way, is July 24th, 2026, and we thought it’d be fun to do an update of our top ten predictions for the market that we did back in January this year.

2 minutes, 14 seconds

So Ben kick it off what we think back in January, what’s going to happen. And the ESOP Industry.

2 minutes, 20 seconds

Yeah I mean you’ll be amazed to how many of these came true I think.

2 minutes, 25 seconds

But first, Trevor, you said more banks will be willing to lend for ESOP formations. And I personally found that to be true.

2 minutes, 33 seconds

What about you? Absolutely.

2 minutes, 35 seconds

So banks who get it, who liked ESOP companies because they’re strong cash flow. Right. Engaged employees, strong management, strong future.

2 minutes, 43 seconds

They’re all in.

2 minutes, 44 seconds

And we’re seeing that with the deals are working on so it’s just more of that a lot of the nationwide banks think like the top five, top six in terms of assets.

2 minutes, 53 seconds

They are all in on the ESOP lending and tons of regionals as well. So the lending market is definitely competitive.

3 minutes, 1 second

And large which is a positive sign for our space. Something very positive.

3 minutes, 6 seconds

But it seems like all the deals we’re doing right now have a financing component on it. And so it just then all across the board.

3 minutes, 12 seconds

Well you said regionals big banks.

3 minutes, 15 seconds

The second one we had was more private equity owned companies will look towards ESOPs to offload, either to mitigate risk or to change their profile.

3 minutes, 25 seconds

And I don’t have much experience or much exposure to that. You see that to be true?

3 minutes, 30 seconds

So I definitely have had conversations with PEs that – Typically software companies that are looking for an exit and valuation is always what comes up in mind.

3 minutes, 39 seconds

Yeah.

3 minutes, 40 seconds

If it’s a company is going to go ESOP, you need to be positive cash flow and strong cash flow and so on.

3 minutes, 45 seconds

So I do know it’s anticipate there being more discussions in our space. I think that’s going to be a huge trend.

3 minutes, 52 seconds

You read the Wall Street Journal read about all these so-called zombie funds that have a lot of portfolio companies that they need to offload.

3 minutes, 59 seconds

Their well past their the horizon there. They need to get liquidity. Next question is, how do you do that? You know, outside of a thriving M&A market and so on.

4 minutes, 9 seconds

So might look to the ESOP exit. So I do anticipate more discussions to be had there. But.

4 minutes, 17 seconds

Also this was an interesting point too is – Once they get to a certain point they might then transfer what’s called a continuation fund.

4 minutes, 26 seconds

So I don’t know Ben what sounds better: you’re ESOP-owned or you fall into a continuation fund. Yeah.

4 minutes, 32 seconds

I would much rather have the employees have a stake in our future and I have seen when I was in Washington DC earlier this year, I did see a company that’s a boat manufacturer.

4 minutes, 43 seconds

Navy is one of their biggest clients. They were private equity owned and they kept trending down.

4 minutes, 49 seconds

And private equity did as sort of a goodwill gesture, sell them to an ESOP, sell them to the employees. And that turned out to be incredibly successful for them.

4 minutes, 58 seconds

So we’ll see if things like that continue.

5 minutes, 1 second

You also said more companies owned by Gen Xers, will be using a partial Esop for liquidity and to sort of dip your toe into the ESOP space.

5 minutes, 10 seconds

Yeah, we’re seeing that trend at Menke, a lot of our new clients are Gen Xers. We still have a lot of baby boomer clients as well.

5 minutes, 17 seconds

But we’re seeing a very clear trend here with Gen X business owners using the ESOP to get partial or full liquidity and stay independent and what makes a good Esop company.

5 minutes, 27 seconds

It’s if the company’s better off independent and a lot of these are.

5 minutes, 30 seconds

So we’re seeing that trend I don’t expect that to slowdown I expect it to accelerate as we head into the rest of 2026, and of course 2027.

5 minutes, 39 seconds

Absolutely, A.I. will increase awareness about ESOPs as a liquidity tool for business owners. I’ve seen this, well, I’ve seen A.I.

5 minutes, 48 seconds

used in many different ways.

5 minutes, 49 seconds

Some people will check our work behind the scenes as we’re having a discussion I had a meeting a lunch meeting with the prospect,

5 minutes, 57 seconds

and literally their assistant was there and that basically well, it was finance.

6 minutes, 2 seconds

And he had his phone open listening to me the entire time and was double checking me against A.I. and he asked, can I do this? And I said, why not?

6 minutes, 10 seconds

You know this, I have nothing to hide here. Why not? But we’re going to see more and more of that. And as far as A.I.

6 minutes, 17 seconds

driving ESOP transactions and so on. And kind of replacing a lot of that I am bullish on, A.I.

6 minutes, 24 seconds

in the space in terms of research, getting up to speed quick on industry, industry trends, valuation, so on.

6 minutes, 32 seconds

And of course the education component, that’s a huge one.

6 minutes, 35 seconds

But in terms of it maybe replacing the people who make esops happen, I’m not too bullish on that because I still feel at the end of the day, people buy from people.

6 minutes, 45 seconds

Relationships matter more than ever, and people use AI as a validation tool, but not as an execution tool in our space.

6 minutes, 55 seconds

Absolutely. That human touch is very important.

6 minutes, 58 seconds

Additionally, employees becoming more aware of the Esop benefit and looking for employment at ESOP-owned companies, you know, anecdotally that’s true.

7 minutes, 8 seconds

There haven’t really today been any studies that have borne that out. One in the Central Valley, though. Oh, that’s right, it’s about several months back.

7 minutes, 16 seconds

So it is true that the word is out that, hey, if you’re working somewhere and you produce something and you build something, you name it, you probably have skin in the game, you know, because why not?

7 minutes, 30 seconds

Right.

7 minutes, 30 seconds

And then if you’re sitting there contributing and you know, so on and you have that ownership mentality for then working for an employee owned company

7 minutes, 39 seconds

where you get skin in the game, where you have equity can make tons of sense because your incentive is tied with that with the Board, of management keeping the company going where it should go in the future.

7 minutes, 49 seconds

So, there was that study I forgot who conducted it in the Central Valley, Central Valley business Times.

7 minutes, 56 seconds

She said that actually with Central Valley, employees, especially those looking for, construction jobs, etc., were actually seeking out Esop companies.

8 minutes, 7 seconds

So I do see more of that.

8 minutes, 8 seconds

You know, you see players like, Certified EO they have that job database on their website.

8 minutes, 14 seconds

The job seekers can go on and basically find Esop opportunities.

8 minutes, 19 seconds

So I do expect that as the word gets out that for people who are of high caliber, it should be working for companies that give that equity, they’re

8 minutes, 28 seconds

gonna not only seek that, but ultimately demand that. You’re absolutely right. And I did forget about that Central Valley article.

8 minutes, 36 seconds

And study. That’s good. Next. We will see our first cannabis Esop in 2026. And that has come to fruition.

8 minutes, 43 seconds

There’s a cannabis company in, Pennsylvania that has become an Esop. And I just now we’re seeing, you know, a huge push on the deregulation side.

8 minutes, 53 seconds

I believe it’ll just continue to grow and pun intended, and we’ll see more and more of those types of companies become, employee owned.

9 minutes, 4 seconds

Exactly. I think always a bit of a gray area there on a legal side. Right. You know, but yeah, we saw that we didn’t do it some other advisor did.

9 minutes, 13 seconds

Yeah, I forgot it was announced or not, Who did that? But, yeah, I expect to see more of that.

9 minutes, 17 seconds

And I’ve had a lot of conversations with cannabis companies over the past several years.

9 minutes, 21 seconds

Back when the market was crazy hot the issues was always valuation because they thought the company was worth something way above what, you know, cash flows would support.

9 minutes, 30 seconds

But I definitely agree. Yeah, we have since and we’ll probably see more of that. There is some precedent now for how to value, cannabis.

9 minutes, 40 seconds

Everything will be fine. Yeah. Next a perfect storm of baby boomers. And Gen Xers will be leaving in addition to pro Esop legislation.

9 minutes, 51 seconds

And I, on the pro Esop legislation piece that is very much true.

9 minutes, 55 seconds

There are bills in the House and the Senate and also the director, the secretary director of is EBSA is pro ESOP.

10 minutes, 5 seconds

So with those three things combined, it’s only a matter of time before we continue to see real positive, regulatory trends in, the Esop space.

10 minutes, 16 seconds

And you’ve heard it a billion times about the silver tsunami.

10 minutes, 19 seconds

But I have found now Gen Xers don’t want to end up like their parents working until they’re 70 plus years old.

10 minutes, 27 seconds

And so getting that partial ESOP and taking some chips off the table really helps them kind of plan for the future and plan for a smooth exit.

10 minutes, 37 seconds

Absolutely. That was one of the key themes at our bank event yesterday was Designing early. Right.

10 minutes, 43 seconds

So having a plan in place because when you have time on your side to have a plan in place everything is going to work as it should.

10 minutes, 49 seconds

You never want to make a long term plan, long term strategy, when you’re under the gun right? So this goes along with the partial ESOPs you talked about and so on.

10 minutes, 59 seconds

And increasingly it’s Esop or private equity, one or the other go down the private equity path. And the negotiation can be long – might not even close.

11 minutes, 8 seconds

You know so many those deals blow up.

11 minutes, 10 seconds

Esop as long as valuation is within the fair market value, you know, the valuation – it always is that. So it’s it’s a range.

11 minutes, 18 seconds

It’s not a, you know, one set number, you’re probably going to get a deal with that, you know, on the ESOP side.

11 minutes, 24 seconds

So ESOP it is totally opposite, you have a high likelihood of a close.

11 minutes, 29 seconds

And all the players of course, want it to close, you know, because both the sell side advisors, of course, the company itself and the trustee is they want to see a good deal get done.

11 minutes, 40 seconds

So I think more and more of that, you know, we’re going to see that’s also personality that’s been out there that term for a long time. You know.

11 minutes, 48 seconds

That’s right. It’s just one contingent. absolutely.

11 minutes, 50 seconds

Architecture, Construction, and Engineering companies will continue to lead the charge in the implementation of Esops.

11 minutes, 59 seconds

We’re finding that to be true. I know a lot of our deals are in that space.

12 minutes, 3 seconds

I know it just seems like those types of companies are good fits for Esop, especially if the culture is already strong or already you know, in a good place.

12 minutes, 16 seconds

And then we always get surprised by industries.

12 minutes, 19 seconds

We pitched a payments company a couple weeks back and, we always get surprised. Right?

12 minutes, 25 seconds

But there’s those tried and true industries that, you know, are always going to remain a good Esop candidate, a company to have an ESOP in there as a shareholder.

12 minutes, 34 seconds

But we’re seeing more out there too, that, you know, you know, could maybe go other paths strategic.

12 minutes, 39 seconds

You know, acquisition you know. So on.

12 minutes, 42 seconds

But looking at the ESOP that these really first flexibility and of course let the company deal with independence. Yeah.

12 minutes, 52 seconds

Speaking to culture we had building on ownership culture before the implementation of an Esop will become more commonplace.

13 minutes

And that is true.

13 minutes, 1 second

And that was during the bank event that was brought up as well, that, you know, culture is huge part of it.

13 minutes, 8 seconds

And Esop won’t create a good culture, but it might accelerate or amplify the strong culture of so we’re seeing things like EOS or the entrepreneur ownership system.

13 minutes, 22 seconds

If, put in place, you know, sort of a mental shift of how to operate a company that gets a little bit more buy-in.

13 minutes, 29 seconds

And there are several other models like that, but, we’re seeing that happen more and more.

13 minutes, 34 seconds

And in a lot of these calls that we take, you know, legacy’s a big component. Liquidity is a big component.

13 minutes, 42 seconds

But also maintaining culture is another big component of those conversations that we’re having. Absolutely. And culture can be so hard to define.

13 minutes, 51 seconds

But at a high level, what is a culture of a business? It is what makes the business hum, it makes it.

13 minutes, 56 seconds

What does it take for the employees to come up show of each day, be happy and perform and and so on.

14 minutes, 4 seconds

So it’s that what makes the company tick that is the culture in a nutshell. And we see it all over the map there.

14 minutes, 13 seconds

You know we talk to ESOP candidate companies companies with strong followers. Often the ESOP is just a natural fit. Makes tons of sense.

14 minutes, 21 seconds

Those whose culture might be weaker. You know that’s definitely a value judgment there. But you know maybe it’s not geared towards long term.

14 minutes, 32 seconds

Independence, long term growth and so on. All those good factors that we see ESOP candidates have. And then maybe ESOP’s not a good path.

14 minutes, 39 seconds

It’s just a simple question- is business better off staying independent? And a lot is loaded into that question versus not.

14 minutes, 46 seconds

And if the answer is no, like maybe it is, there’s key person risk client dependency. You know, maybe the top client or the top customer makes up 75% of their revenues.

14 minutes, 57 seconds

Right.

14 minutes, 57 seconds

And then they’re not diversified so might not be another good ESOP candidate may be in that situation. And so on, but culture is definitely important.

15 minutes, 4 seconds

And we are seeing business owners and business leaders contact us early on and want to do a lot of preplanning with that.

15 minutes, 11 seconds

in focus. Like, how do we- we HAVE a have strong culture? How do we use this to enhance it? You know, to make our company that much better.

15 minutes, 19 seconds

And that’s always awesome conversations. Absolutely.

15 minutes, 23 seconds

Finally, Esops will no longer be seen as a last resort tool and more as a strategic method for, I mean, for legacy and also for competitive advantage in the hiring space.

15 minutes, 36 seconds

And we’re seeing this in just being brought into more conversations by CPAs, bankers, wealth management advisors that are,

15 minutes, 45 seconds

you know, advising their clients on what to do next, what steps to take, what succession plan to put in place and to bring us in because

15 minutes, 54 seconds

there’s no longer the stigma of you do it yourself, if nothing else worked. Yeah.

15 minutes, 59 seconds

So it is a really good way for that legacy component to maintain, the company to remain in the hometown.

16 minutes, 7 seconds

We find that the owners, you know, can show up at the grocery store and look a former employee in the face and feel good about what transpired as opposed to selling to PE or private equity.

16 minutes, 18 seconds

So it is now seen as a viable option.

16 minutes, 23 seconds

And I think that will only continue, especially with some of the regulation that we’re seeing proposed. I think it will become very competitive.

16 minutes, 32 seconds

And ESOP option: It’s the endurance option.

16 minutes, 38 seconds

It’s for the people who think long term, I want to build that long term wealth, you know, and understand the business. There’s ups and downs.

16 minutes, 44 seconds

It’s not this, you know, 20% a year growth that just happens right. There’s ups and downs. And so on. Esop for the people with that mentality.

16 minutes, 53 seconds

It’s an awesome option because it’s built to last.

16 minutes, 56 seconds

And we see that with our successful clients who have had Esops 50 plus years, you know, they’ve grown 13% a year stock price, we did a Esop radio episode.

17 minutes, 6 seconds

CCI systems, those companies, and they’ve just endured over the time. And the Esop has enabled that, that growth to happen.

17 minutes, 15 seconds

It’s also a thinking person’s exit too, because there are so many options, strategies..

17 minutes, 20 seconds

Our role in pitching these and making them happen is understanding the right solution.

17 minutes, 26 seconds

But it is very much a thinking person’s exit because they are so flexible and there’s no one size fits all approach here.

17 minutes, 34 seconds

Whereas you go down the other path, you know they have strategic private equity. There is often just, you know, one one size, right. And so on. Okay.

17 minutes, 42 seconds

Now we have a just a few minutes left Ben rest of 2026 top five. What are you thinking? Ooh, top five I think we will get yeah.

17 minutes, 50 seconds

One piece of legislation that I just read about today that has been proposed is removing the contribution limits from an ESOP plan.

17 minutes, 57 seconds

And without getting into the weeds, I do think that will get passed as well as sort of alleviating some of the restrictions for lending in that other bill, the AORA And I think something either one of those two will get passed this year.

18 minutes, 12 seconds

I really also think that we’ll just continue to see momentum.

18 minutes, 16 seconds

We know the economy is doing weird things, but these ups continue to be tried and true. So I think we’ll continue to see a steady flow of transactions.

18 minutes, 26 seconds

You know, the world, you know, Father Time waits for no one as they say. So a succession plan needs to happen. I think we’re going to see more of the Esop S-Corp structure out there.

18 minutes, 35 seconds

So 100% ESOP not paying tax if they’re an S-corp. Have all that debt paid off your cash flowing machine.

18 minutes, 42 seconds

And if you’re managing repurchase obligation and all that you’re thriving and using that capital to do smart acquisitions can make tons of sense.

18 minutes, 51 seconds

So I think we’re going to see that model thrive, continue to thrive. There’s a lot of good players out there doing that. So ESOP slash EO hold company – so I think we’re going to see more of that.

19 minutes, 2 seconds

And then I’ll finish it off with the bank side. I think we’re going to see Esop financing continue to thrive.

19 minutes, 9 seconds

And also maybe the idea of longer term, higher amounts as well. Right now it’s still very much limited in terms of leverage.

19 minutes, 16 seconds

But, you know, is there a role that maybe we see like, mortgage style, you know, type of buyout, you know, where you kind of come in and can finance

19 minutes, 25 seconds

the whole purchase price and then pay it back over a long period of time, maybe, you know, something like that could be, interesting, it could also be a boon for the industry.

19 minutes, 33 seconds

Thanks everyone For joining us, check us out. Esop radio on LinkedIn. Of course. Your favorite podcast station.

19 minutes, 42 seconds

Apple, Spotify, YouTube.

19 minutes, 44 seconds

Trevor Gilmore you can connect with me on LinkedIn at Trevor Gilmore is the handle there. I’m Ben Spadt, you can see me on LinkedIn @ Benjamin Spadt.

19 minutes, 53 seconds

And until next time, thanks and goodbye. Take care. Thanks for joining us.

Bank Lending for ESOP Formations Has Gotten More Competitive

One of the most concrete shifts in 2026 has been on the lending side. Banks that understand the ESOP structure have become more willing to lend into ESOP formations, largely because ESOP-owned companies tend to bring strong cash flow, engaged employees, and experienced management to the table. That appetite now extends well beyond a handful of specialty lenders — several of the largest national banks by assets are actively competing for ESOP-related lending, alongside a growing number of regional banks.

The practical effect for business owners is a more competitive lending market, which matters because most ESOP transactions include some form of financing. Owners considering an ESOP should still expect the lending conversation to be an integral part of structuring the deal, but the range of willing lenders has expanded. Because financing terms, leverage limits, and structure vary by lender and by transaction, owners should work with their ESOP advisor and lender directly rather than assuming any single set of terms applies broadly.

Private Equity-Owned Companies Are Increasingly Looking at ESOPs

A second notable trend is the growing number of conversations between private equity firms and ESOP advisors. This is showing up most often with software companies nearing the end of a typical PE holding period, where valuation is usually the central question. For a company to make sense as an ESOP, it generally needs to demonstrate positive and strong cash flow, since the ESOP structure depends on the company’s ability to service its own transaction debt over time.

Part of what’s driving this trend is the number of private equity funds holding portfolio companies well past their typical investment horizon — sometimes referred to as “zombie funds” — that need to generate liquidity for their investors without a robust M&A market to rely on. Rather than transferring a portfolio company into a continuation fund, some firms are instead choosing an ESOP sale. One example discussed on the episode involved a Washington, D.C.-area boat manufacturer with the U.S. Navy as one of its largest clients. The company had been trending downward under private equity ownership, and its PE owner sold it to an ESOP, a transition that has reportedly gone well for the business since.

Gen X Business Owners Are Using Partial ESOPs to Take Chips Off the Table

A third trend worth watching is the growing number of Gen X business owners using a partial ESOP transaction — selling less than 100% of the company to the ESOP — to gain liquidity while keeping the business independent. This differs from the traditional image of an ESOP as a full, one-time exit. A partial sale lets an owner de-risk personally without giving up control or independence, and it appears to be a meaningful entry point for owners who aren’t ready for a full transition but want to begin planning early.

This ties directly into a broader planning point: succession plans built with time on your side tend to go more smoothly than plans built under pressure. Business owners weighing a full sale later in their career often find that a partial ESOP transaction now creates flexibility rather than closing off options.

AI Is Showing Up in ESOP Conversations — as a Validation Tool, Not a Replacement

Business owners and their advisors are increasingly using AI tools during ESOP discussions, but largely as a way to fact-check information in real time rather than to replace the advisory relationship itself. In one example from the episode, a prospect’s finance team member used an AI tool on his phone during a meeting to verify what was being said. AI appears well suited to research, industry education, and getting up to speed quickly on valuation concepts and ESOP mechanics. It has not, however, replaced the relationship-driven work of structuring and closing a transaction, which still depends heavily on trust and judgment between the parties involved.

Employees Are Actively Seeking Out ESOP-Owned Employers

Anecdotally, ESOP advisors have long heard that employees value working at an employee-owned company. That anecdotal pattern now has some data behind it. A Central Valley Business Times study found that job seekers in that region — particularly those looking for construction jobs — were actively seeking out ESOP-owned companies. Job platforms such as Certified EO have also built out databases specifically listing openings at employee-owned companies, giving job seekers a direct way to find them.

For business owners, this suggests that ESOP status may increasingly function as a hiring and retention advantage, not just a succession and tax planning tool, particularly in labor markets where skilled workers have options.

The First Cannabis Company ESOP of 2026

Earlier in 2026, a cannabis company in Pennsylvania completed the first cannabis industry ESOP transaction of the year, handled by another advisory firm. Cannabis companies have historically faced two challenges in considering an ESOP: ongoing legal and regulatory ambiguity at the federal level, and valuation, since many cannabis businesses were valued well above what their cash flows could support during the industry’s earlier growth phase. With more transaction precedent now available for valuing cannabis businesses, and continued movement toward deregulation, more cannabis companies may explore the ESOP structure going forward. Given the legal complexity specific to cannabis businesses, owners in this industry should involve ERISA counsel early in any ESOP exploration.

Legislation and Demographics Are Reinforcing Each Other

Several pieces of pro-ESOP legislation are currently moving through the House and Senate, and federal regulatory leadership overseeing employee benefit plans has been described as supportive of the ESOP structure. Combined with a wave of baby boomer and Gen X business owners approaching retirement age, this creates conditions that may continue to push more owners toward ESOPs as a succession option. Because federal legislation can change during the drafting and negotiation process, owners should not plan around specific provisions until a bill is finalized.

Why ESOPs Are Increasingly Compared Favorably to Private Equity Sales

One dynamic worth understanding: an ESOP transaction and a private equity sale are structured very differently when it comes to certainty of closing. In a private equity sale, valuation is often the subject of prolonged negotiation, and a meaningful share of these deals fail to close. In an ESOP transaction, valuation is set within a defensible fair market value range determined by an independent process, which tends to produce a higher likelihood of reaching a completed deal. Sell-side advisors, the company, and the ESOP trustee are all generally aligned in wanting to see a fair transaction close, which contributes to that dynamic.

Which Industries Are Leading ESOP Adoption

Architecture, construction, and engineering companies continue to represent a large share of ESOP transactions, often because these businesses already have strong operational cultures that translate well into an ownership structure. That said, ESOP advisors are also seeing interest from less traditional industries — payments companies, for example — suggesting the pool of viable ESOP candidates may be broader than the historical pattern suggests.

Building Ownership Culture Before Implementing an ESOP

A final trend worth noting: more companies are intentionally building an ownership-oriented culture before they implement an ESOP, rather than treating culture as something that follows automatically from the transaction. Operating frameworks such as EOS (the Entrepreneurial Operating System) are sometimes used to help shift a company toward more employee buy-in ahead of a transaction. It’s worth being clear about what an ESOP can and cannot do here: an ESOP does not create a strong culture on its own, but it can accelerate or amplify a culture that already exists. Companies with weaker existing cultures, significant key-person risk, or heavy customer concentration may be less well suited to the ESOP structure regardless of how the transaction itself is designed.

Looking Ahead

At the midpoint of 2026, the broad direction of the ESOP market looks largely consistent with what was expected at the start of the year: more competitive bank lending, growing private equity interest in ESOPs as an exit path, continued legislative support, and a widening set of industries and owner profiles considering the structure. For business owners, the practical takeaway is that ESOPs are increasingly being evaluated as a proactive, strategic option rather than a fallback — which makes early planning, well before a transaction is necessary, more valuable than ever.

If you’re a business owner trying to understand whether an ESOP fits your succession goals, the most useful next step is an honest, data-driven look at your specific situation rather than general market trends. Menke & Associates offers a Feasibility Questionnaire for a Free Preliminary Analysis to help owners understand whether an ESOP is a realistic fit before committing further time or resources. You can also reach out directly through our Contact Us page with specific questions about your company’s situation.

Considering an ESOP?

Request a confidential preliminary feasibility review to evaluate:

- structural viability
- liquidity and control
- tax advantages
- succession options

No cost. No obligation.

Request Your Confidential Review →

Related Resources

About ESOP Radio

ESOP Radio is the official ESOP podcast from Menke — where real stories of growth, succession, and long-term wealth building are told.

Hosted by Trevor Gilmore and Ben Spadt, the show features conversations and educational episodes designed to help business owners better understand employee ownership.

Disclaimer

This podcast is provided for educational purposes only and does not constitute legal, tax, investment, or fiduciary advice.

Share this article:

Learn why an ESOP is better for You,
your Business, and your Employees

Upcoming Web Seminar

The ESOP Exit Strategy

Free 90-Minute Webinar for Business Owners, CFOs & Advisors

Learn how ESOPs fuel growth, reduce taxes, and power succession—without giving up control.

Free live webinar · Wednesday, October 21st, 2026 · 10:00–11:30 AM PT / 1:00–2:30 PM ET

RESERVE MY SPOT

Days

Hours

Minutes

Seconds

Why 2026 is the Time for ESOPs

Strong companies are using ESOPs to play offense. With rates stabilizing and talent still tight, employee ownership is delivering a durable edge:

- Founder Liquidity—On Your Terms. Create a market for your shares without selling to private equity or competitors.
- Major Tax Efficiency. Enable capital‑gains deferral for selling shareholders (Section 1042 eligibility) and reduce or even eliminate ongoing corporate income tax for S‑Corporation ESOPs—freeing cash for growth.
- Talent Magnet. Meaningful employee ownership boosts engagement, retention, and performance—without relying solely on wage increases.
- Resilient Margins. ESOP tax advantages help counter wage pressure, input costs, and tariffs—so more operating cash flows to strategy.
- Control & Culture Intact. Transition ownership while keeping leadership and values in place.. Transition ownership while keeping leadership and values in place.

Bottom line: ESOPs create a rare win‑win‑win—for owners, the business, and employees.

What You’ll Learn

ESOP 101—Modern Playbook
How ESOPs work in 2026, who qualifies, deal structures, and timelines.

Tax Strategies that Change the Math
Capital‑gains deferral, corporate tax reduction/elimination for S‑Corp ESOPs, deductible contributions, and cash‑flow modeling.

Talent & Culture
Retention without across‑the‑board raises; ownership communications that actually move the needle.

Protecting Margins
How ESOP incentives can offset cost inflation and support reinvestment.

Valuation & Financing in Today’s Market
Bank/seller notes, mezzanine options, rate considerations, and why “bankable ESOPs” are closing now.

Governance & Control
Board, trustee, and management roles—what really changes (and what doesn’t).

Who Should Attend

- Business Owners planning an exit, partial sale, or recapitalization
- CFOs evaluating capital structure and tax strategy
- Advisors & Succession Planners guiding owner‑led companies
- HR & ESOP Committee Members building engagement around ownership

Agenda (90 Minutes)

1. Welcome, Speakers & Why ESOPs in 2026 (5 min)
  Quick orientation; who Menke is and why ESOPs are winning right now.
2. ESOP Basics & Business Owner Benefits (10 min)
  What an ESOP is; liquidity, diversification, succession, productivity.
3. Myth‑Busting: What ESOPs Do—and Don’t—Require (5 min)
  No, you don’t have to sell 30%+, borrow big, or give up control.
4. Deal Structures & Transaction Paths (10 min)
  Cash‑contribution (pay‑as‑you‑go), leveraged (bank/seller notes), and stock contribution; when each fits.
5. Typical Scenarios & Outcomes (10 min)
  Gradual sales, minority/majority sales, 100% buyouts, and recap strategies.
6. Who’s a Strong Fit (and Common Constraints) (5 min)
  Profitability, team/transition readiness, industry notes.
7. Tax Strategy Deep Dive (10 min)
  S‑Corp ESOP distribution savings; C‑Corp §1042 capital‑gains deferral; entity‑path options.
8. Valuation & Pricing vs. Third‑Party Sales (8 min)
  FMV standards, control vs. minority value, practical comparisons.
9. Financing the ESOP (8 min)
  Bank market overview, seller paper, balance‑sheet effects, cash‑flow modeling.
10. Plan Operations & Employee Communications (8 min)
  Eligibility, vesting, distributions, disclosures, and how transparency drives results.
11. Culture, Engagement & Measured Performance Uplift (6 min)
  What changes on day 2; tying ownership to productivity.
12. Roadmap & Next Steps (3 min)
  Feasibility, design/adopt, contributions, and timing the sale.
13. Live Q&A (2 min)

Hear From Past Attendees

“I came in skeptical. I left with a concrete roadmap and the math to brief our board.”

— Mark T., CFO, Manufacturing

“This clarified our exit plan and showed how we can reward employees at the same time."

— Susan D., Founder & CEO, B2B Services Firm

Your Presenter: Phil DeDominicis

Phil DeDominicis is an ESOP strategist and M&A advisor who has guided 300+ companies through ESOP formations, financing, and transactions over 20+ years at Menke & Associates. He specializes in selling ESOP‑owned businesses to financial or strategic buyers and in helping ESOP companies acquire other businesses.

Before Menke, Phil spent 14 years in investment banking M&A at Morgan Stanley and Salomon Smith Barney, advising middle‑market companies on change‑of‑control transactions. He holds a B.S. in Chemical Engineering from the University of Delaware (1985) and an MBA in Finance & Accounting from UCLA Anderson (1989). Phil currently serves on six for‑profit and not‑for‑profit boards.

What Phil will cover:

- Where ESOPs win in 2026 (tax, talent, and control)
- Owner liquidity paths: minority, majority, and 100% sales
- Financing options and what lenders look for
- Valuation reality vs. third‑party sales
- How to prep a board, trustee, and employees for a successful close

Reserve Your Spot Now

Seats are limited. Save yours now and receive the ESOP Feasibility Checklist.

10:00AM – 11:30AM PT
11:00AM – 12:30PM MT
12:00PM – 1:30PM CT
1:00PM – 2:30PM ET

Wednesday, October 21st, 2026

RESERVE MY SPOT

No cost. Suitable for companies with $5M–$500M+ in revenue across construction, manufacturing, services, distribution, tech, and more.

FAQ (Quick Hits)

- Do I lose control? No—most ESOPs preserve day‑to‑day control with your leadership team and board.
- Is this only for certain industries? ESOPs work across sectors when cash flow is stable and leadership continuity matters.
- Can we do a partial sale? Yes—stage liquidity over time while capturing tax benefits.

READY FOR AN ESOP NOW?

Interested in finding out how an ESOP could work for your company?

For a free preliminary analysis, just fill out our ESOP Feasibility Questionnaire.

FREE ANALYSIS

Man viewing employee stock ownership plan presentation on computer screen.

Upcoming Webinar: The ESOP Exit Strategy

July 29, 2026

Don’t miss this opportunity to discover how ESOPs can align your business goals with the needs of employees and stakeholders.

Read article

ESOP Radio

Partially completed timber frame on a stone foundation, representing a second stage ESOP transaction to full ownership

Second Stage ESOP Transactions: What Changes When the ESOP Goes to 100%

September 28, 2026

Your minority ESOP has worked. The debt is paid down and the culture has taken hold. Selling the rest of the company to the ESOP can look like a repeat of the first deal, but valuation, financing, and governance all change once the ESOP takes control.

Read article

Brass straightedge on slate, representing consistent ESOP valuation standards under new federal law

Congress Passes the Retire Through Ownership Act: What Clearer ESOP Valuation Rules Mean for Owners

September 17, 2026

For fifty years, the hardest question in employee ownership was not how to finance the deal or how to structure the tax benefits. It was what “adequate consideration” actually meant. Congress has now answered it — and the answer is narrower, and more useful, than the headlines suggest.

Read article

ESOP Radio

Why Growing AEC Firms Outgrow Relationship-Only Marketing

September 14, 2026

Most contractors say they win work on relationships, and most are right, up to a point. What happens when the people who hold those relationships retire, or when the firm tries to grow into a market where nobody knows its name?

Read article

ESOP Radio

Abstract suspended architectural span under cable tension, representing the long-term structure of a Section 1042 tax deferral

Section 1042: How the ESOP Tax Deferral Works, and What It Can Cost

August 31, 2026

A seller who elects Section 1042 on a $100 million ESOP transaction can defer roughly $33 million in capital gains tax, potentially for life. The same election, structured without care, can leave that seller carrying leverage on a securities portfolio for decades. The difference is in how the portfolio is built.

Read article

Abstract network of interconnected nodes representing ESOP employee ownership culture

Building an ESOP Ownership Culture That Actually Works

August 17, 2026

Two companies can have identical ESOP structures on paper and produce completely different results. The difference usually comes down to three specific things — and most companies get at least one of them wrong.

Read article