The Berman Buzz

EP4 - Seller Fiduciary Risk for ESOPs - discussion with Greg Daugherty


[0:11] Welcome back this is the ESOP guy we are on a journey to an ESOP now we are in season 3 and looking back we put together really over like 100 ESOP podcast that really are they're designed to help, understand the Employee Stock ownership plan process understand how we use Aesop's in succession planning and exit planning and even some growth strategies and, so just wanted to welcome you to the podcast today and thank you for joining if you want to look at any of the other episodes please go to our website at journey to an ESOP.com. And as we start today today we have Greg Dougherty he's going to be this will be his third visit on the podcast so we're super happy to have you Greg again. [0:52] Thanks for having me feel great and so Greg is with Puerto right he's an ESOP attorney and today the topic we're going to talk about is seller fiduciary risk, on an ESOP transaction and this topic I think is very important and I think, just because there's a there's a lot of confusion about what we mean by seller fiduciary risk and in some cases it's, people overthink it and they think it's wait more than it really is and other cases they don't really put a lot of credence on it at all so, what we want to do today is really Greg and I want to go through that topic and really help you understand you know what's what are the accurate ways to look at seller fiduciary, and so to do that Greg I thought we'd just start off with some of the basics and just kind of build the I build the background and the foundation of what we're going to talk about, with the idea of what is when we say fiduciary every you know we kind of look at and say we kind of know what fiduciary has but for people that are maybe just tuning in and really have any of you never even heard the concept of fiduciary can you give us a little background on that. [1:51] Sure and before answering that I kind of your first point about people overthinking it sometimes or being confused about it. [2:01] I would say the starting point is if you're going to do an ESOP transaction have a team of professionals who know what they're doing and. That solves a lot of these issues you know Sucka sometimes I'll hear people you know be fearful of doing esops because they're afraid of lawsuits by again if you have, a team of professionals who follow the Department of Labor rulings follow the latest best practices that mitigates the risk extensively, and then so now to get to your question or why are people afraid of lawsuits it's usually some sort of fiduciary Theory and. [2:43] In most cases a seller is not going to be a fiduciary because a fiduciary is somebody who exercises discretionary Authority, quality control over qualified plan assets over an ESOP plan assets you can also be a fiduciary if you give investment advice, to a plan and charge a fee for it but that's that really going to be applicable to an ESOP that's more the investment advisor 401 K and K plan right so in most cases. [3:15] Seller is not going to be an ESOP fiduciary because they do not have control of they're not exercising management or administrative authority over ESOP plan assets, it's a good point and so obviously if that were it we wouldn't have anything else to talk about it's so so one thing to I'll make comment to as you mention it and I totally agree with you finding the team of professionals will be really critical in part of the part of the goal of this podcast is to give you the questions to ask and because hiring a team of professionals we kind of, you know implying that you're going to hire qualified qualified team of professionals and so what we want you to have is the information to ask the right questions to qualify those professionals to make sure you are, you know in line they you are building a team of people in your group that actually do, have the knowledge base that they need and also can protect you you know through these types of things so that's just kind of a point as we, and I think that's we've made that point throughout the whole podcast but I think it's just important to understand that that will be important so as we go into this topic. We're clearly going to go into what then the remaining areas of fiduciary are, for the seller because that's really what we're going to focus on but let me back up just a second and say you know for an ESOP itself you know we talked about fiduciary phone case but if we think about an ESOP why is this even an issue for an ESOP transaction. [4:44] So that's a good point because I mean there are fiduciaries and in every case the trustee of the ESOP who's buying the ESOP, is going to be fiduciary and the issue is that there's what's called under arrest of a prohibited transaction and it says that an erisa fiduciary. I cannot engage in a purchase or sale between the plan and what's called a party in interest. Party in interest is interestingly the Department of Labor term the IRS calls it a disqualified person but it's the same thing and so who's a party in interest well. Party in interest includes the employer and the employee of the employer. In any owner of more than 50% of the stock of the employer and any service provider to the employer so, the seller do any saw almost always is going to be a party in interest because they're an employee of the employer right who sponsors the plan they're often owner of more than 50% of the stock, of the plan sponsor and so the trustee. [5:52] As the fiduciaries prohibited again in general from engaging in any purchase or sale between the plan and a party in interest. Well obviously that's not the end of the discussion or else we'd never have esops and and so there's an exception right that says that specifically for Aesop's and the accepts the prohibited transaction exception, says that if a fiduciary pays no more than adequate consideration for the stock that is not a prohibited transaction, an adequate consideration really means fair market value. What would a willing buyer willing seller at arm's length negotiate for the price of the stock or the transaction terms. [6:35] The financing terms everything included in the transaction fair to the participants as a whole so if you have basically if you have. A transaction and a key point is it's fair market value so the ESOP cannot pay a strategic premium. They pay an appraised fair market value then that's a prohibited transaction exception, and so most of this litigation most of the audit risk involves the question that the ESOP pay too much for the stock of the company. And generally that's a risk on the trustee but as we talked about it you know there is some risk. For the seller I think we said in most cases the sellers not a fiduciary but there may be other theories of liability that we can get into as well sure now let's all be digging that just a bit more I would just add to what you said and because the question would be okay so the trustee, cannot pay more than fair market value that if you look at the way the transactions are structured is the trustees going to engage an independent valuation firm. [7:46] In order for them to make sure that they haven't been biased at all in the process and in doing that the end of the valuation the independent valuation firm is going to issue a fairness opinion. That will basically give the trustee you know basically a stronger considered a stronger understanding of fair market value so that they feel more comfortable. Providing their bid or their negotiated value on the on the transaction so that's how a trustee gets comfortable with, the prohibited transaction exception which I love basically the background on that great because it's you know them that totally makes sense you know when you're when you're thinking in and some of the seller standpoint I mean that's the type of thing you do when you're advising, Salter's is to say what when you do a feasibility study. You have a pretty good idea of what the trustees are looking at and what the trustees advisors are going to look at it and so you can tell the seller this is what you could expect from an ESOP transaction, it may be that price is a little bit less than what you would get from selling to a third party. But maybe with some of the other deal turns over time maybe it's in with some of the tax breaks Maybe. [8:59] It's Ben's up comparable but the point is as far as what the initial, purchase price in cash they could get you have a seller you have an advisor like yourself that, can give them a pretty good idea of what they're going to be getting into yeah before they get into it so and that's and that's a big part of it and I think, going into the actual transaction the reason I mean the reason Aesop's actually work to is the sellers not only usually just motivated by the fair by the price the purchase price they're motivated by a lot of other factors which include, hey I want my company to go on with you know the legacy of what we've built I want the employees to be retained and Renault motivated to build something in the future so there's it's not always a just a financial motivator and I think, if it were then people are going to probably lean more towards the Strategic sale and if they can if they can do that I mean there's some cases that that's not going to work so, but yeah so we as we Center on this conversation I think that the key is that we're really talking mostly about what is the valuation and how is that valuation you know being derived out which we kind of covered, because the risk that the selling shareholders going to have is if you think about it from my perspective if they if they kind of know it's worth you know. Say 10 million dollars but the investment people are the sell-side advisers are telling them it's hey we can get you 20 million is that a red flag that they should be thinking about. [10:28] Yes and that's the other issue so in most cases the seller is not going to be a fiduciary. But there's another theory of liability where. If you knowingly participate or cause a prohibited transaction to occur you can be liable even if you are not a fiduciary. And so how do you knowingly. You know cause a prohibited transaction while really if you know that you're getting more than fair market value. [11:00] That's going to. Be something that's heavily litigated because the seller will respond I'm not a valuation expert how am I supposed to know my advisors tell me I can get this we negotiated it mmm and. [11:14] That can carry a lot of weight but then you have to look at the particular facts and there was a recent. Case called Vanessa ski that was decided in the fourth circuit which in Virginia. In December and vernadsky he was actually held to be both a fiduciary and a knowing participant now he was a fiduciary, he had established a partial at least 48 percent ESOP own company and he was the internal trustee. He engaged an independent trustee to do the negotiation but then he remained a trustee afterwards so the court in Department of Labor said hey you're still a. Fiduciary so he had that but regardless of the fiduciary issue in he was a knowing participant because. He had received annual appraisals every year saying that the stock value of his company was, in the 200 some odd dollar a share range and when he negotiated the sell the remaining 52 percent of his company to the ESOP. He got a price of four hundred six dollars a share whoo so double Department of Labor in the court said. [12:34] Hey you may not be a valuation expert but if you're receiving annual appraisals saying 225 to 250 dollars a share and then all of a sudden you get 406. That's a red flag you should have at least asked the question why is this so much higher, then all my prior valuations what's different right that is the type of thing, okay maybe even a ski was in a little interesting situation being partially Esau phone he was getting appraisals but even if. [13:10] You own the company 100%. If you've had other offers from potential acquirers to buy the company that's something that your advisor and that's something that the trustees appraiser should know about if you've had appraisals in the past, for other reasons may be for loan document, purposes or maybe if you've issued Phantom stock or stock options or stock appreciation rights and you got an appraisal to set a valuation for those shares. That counts and if you've had information like that. [13:45] You need to at least ask the question it doesn't mean that you have to get the answer right you just have to show that you asked the question and you did some diligence right, yeah you can't just skip it or just assume like you know they have the best so in that vernadsky case. Obviously they had a sell-side advisor involved right. [14:07] Okay so they so in egg went into negotiations he wasn't just doing it on his own no no not at all yeah so so. And he was found to be both the fiduciary and so he was found liable for the overstated value so let's go into like the case itself the dlls trying to prove that the value is too high. Bright in order so that they can protect the participants which were the employees that they got kind of into this situation where the employees are basically taking the fall for the differential and price they have to pay out this extra money that they shouldn't have to pay for it right, so in that case the deal well found that he was actually. Liable for the fiduciary part of it the overvaluation and so it was jointly liable with the trustee yes for joining for the excess okay, and so just thinking about like the act that the actual results of that so, did how they how they fix it what was it what was it what were the damages in that case do you know so this is that's where the case that was the other interesting point from the case and this is actually good news for sellers sovan us key. [15:20] Here is $406 share share price 40 40 years after he established the ESOP. She forgave a portion of the dead so he sold his company for roughly 20 million dollars he took ten million dollars in cash upfront and other 10 million dollars, and seller financing. So four years later he forgave a portion of that ten million dollars in debt mmm okay and so his argument was okay even if. [15:50] We accept the fact that the ESOP overpaid. [15:54] By forgiving the debt I've reduced the purchase price and so that should offset any damages mmm I think the DOL said that the ESOP overpaid by six million dollars and he forgave about 4 million dollars in debt so. The trustee and I should only two million dollars. Interestingly the Department of Labor tried to argue no like that shouldn't count. And they use an example that if you sold somebody a phony painting and then. Forgave the price while you still gave them something phony and you know your forgiveness shouldn't absolve you that the fourth circuit. Had none of that argument for circuit said no if I sell you a legitimate, painting and tell you to pay me overtime and I forgive a portion of the payment that's a reduction in purchase price here it's a legitimate company I mean the companies, still performing and doing well and if you said that the debt forgiveness doesn't count so if you. If we say that the ESOP overpaid by 6 million the nasci forgives for million. [17:07] But you're still asking him to pay 6 million on top of the four million he forgave like that's a windfall yeah that's just there trying to be punitive at that, right right they said no the goal is to get this to, fair market value so if we overpaid by six million he forgives four million will now the only debt that remains is to million right right so that that debt forgiveness was was a factor, and that was allowed to mitigate damages so that was good outcome now that's interesting so. So in the in the process of doing the second stage transaction then funaki. Because it comes back to I keep coming back to the the sell-side advisor because they're the ones that promoted. Maybe a double share price right and so did that was there any liability on their side at all. [17:57] No and it's pretty rare I Won't Say Never but it's very rare that the sell-side advisor. Gets in trouble for any of this stuff because it's ultimately they're just giving advice they have their waivers, and to be fair there they also have reputational risk so I mean I wouldn't paint sell-side advisors as. You know somebody to be. Afraid of I mean they need to have a good reputation because if they have a transaction that blows up I mean that could be the end of their business yeah because the other thing too. Right the other thing too I would add is in some ways this wasn't. [18:42] Really fair like the Department of Labor was applying hindsight because finesse key did his ESOP in 2010. And this was before we've had any settlement agreements and valuation Department of Labor they tried to issue proposed regulations on what is fair market value and adequate consideration I think back in 1988, they ended up withdrawing those proposed regulations they've never issued any final regulations and so for the longest time. We haven't had any real clear guidance on what adequate consideration is and then in 2014 the Department of Labor. [19:20] Sued great Bank Trust Company. And they enter entered into a settlement agreement where they outlined a number of things that great Bank promised to do to assure that it was going to derive, fair market value and that became a set of best practices and since 2014 there have been several other settlements that have largely followed great Bank of may be tweaked a few things, here in there and so now there's a pretty good road map, of what you want in a transaction to demonstrate fair market value well like I said vaness Keys sold to the ESOP that a second stage transaction in 2010 for years before the great banc decision, the Department of Labor Sue's them in 2016, saying why didn't you follow this process agreement that didn't exist until four years after your transaction yeah yeah I mean that's silly okay let's go back in time it didn't exist they they had and and to I mean, it's like we don't want to paint vernadsky out to be, a criminal he was doing what he thought was best right and US key and I think and one of the things the fourth circuit pointed out and I think why they were willing to mitigate damages was. [20:35] But a ski he only had a high school education. And now granted he had been running his business I think they said he established it 1980s have been 30 years. And they said he was getting like I said he was getting the appraisal report so I mean he wasn't totally clueless but at the same time. He wasn't a financial professional by any means he he had said for a long time back. In the 90s that he had wanted to transition the company to his employees he had also even after the ESOP his company paid a hundred percent of the health insurance and medical expenses of employee says employees. Probably to this day still don't have to pay a penny towards their healthcare costs yeah and his advisors it was in the record his advisors told him hey if you, charger employees you will get more value yeah as that's less of a the ad back that you get from yeah from not paying the writer and you know the court said. [21:37] What this guy's obviously not trying to you know dump a bad and Company on his employees he's. He's demonstrated that he's he really does care about them yeah so they evaluated his character in that right just the way he treated the same way yeah and what is what is true motivation was and, clearly and some of the the other thing to the fourth circuit. [22:02] You know part of it was the standard of review so when when the district court issues an opinion and it goes to appeal. [22:11] The appeals court is supposed to be deferential to the to the lower court to the district court and say, even if we disagree with the outcome if it is plausible unless there's a clear error that no reasonable person could have ever come to this conclusion. We have to be deferential mmm and the Circuit Court. [22:32] Kind of suggested that they disagreed with the outcome but they really said the fact that he kept that he received appraisals, for many years before that second stage transaction they said he became an expert yeah even if we think in this case it's a we disagree that still a reasonable conclusion that he should have at least. Ask the question why is this so much had he hired an independent trustee, through those between the first eight transaction the second transaction did he had so many actually reviewing the appraisal before him. [23:06] Is it trust he was the trustee right, he was he was a trustee so he's getting appraisals and internal trustee and then he hired an independent trustee to do the second stage transact yeah but if we're looking at the case if he had not been the trustee would he hadn't been a better position you know from the first stage to the second stage so, having this the trustee gets the valuation and they review it and then they say art that's the value that was what he was doing had he shifted that role to somebody else I'm just kind of making a point. You know because something sometimes it comes up and we're talking about seller fiduciary risk does it make sense for the seller to be a trustee. [23:44] Right I would say no I would say hire an independent trustee to do that and that certainly. I think it would help them because he certainly would not have been a fiduciary so that would have taken out, yeah one aspect you know maybe there's a question what do you have been reviewing the appraisals anyway porcini but he would have looked at it but you know, but he wasn't in that room that hot seat responsibility the trustee would have said hey this is a review the valuation this is the number, and you wouldn't have had like really been responsible for so probably would have helped write some of the other things that. Ended up hurting him or some of the things that came out of those later process agreements that he wouldn't have known about in 2010 so one of the examples because his adviser said well hey now the ESOP is going to be a hundred percent. One hundred percent shareholder rather than 48 percent shareholder that justifies a premium. Then which the rate you're going for minority to 100% except the DOL said well you're not really acquiring a hundred percent because. But asked he's still going to be a co-trustee after the transaction, and so that waist so why would he be why would he even want to be a co-trustee after like wouldn't he won I just removed the trustee once he hired the transaction trustee wouldn't he want to just get out of that seat at called together but he stayed in it. [25:10] PC state in it but again it was 2010 and there was less okay I don't think trustees were quite, we didn't understand back you know in their crosshairs as they are now yeah okay and his thought was okay I have my I have an independent trustee negotiate the transaction to determine fair market value after the transaction. I've been a trustee for the last several years already I can just continue to do that and saves me a little bit of money from the expense of hiring an independent trustee, so that's probably why I did that. [25:44] And then the other thing that ended up causing a problem was he had a majority of the board seats. And increasingly the Department of Labor is saying if the if the trustee is going to pay. [25:59] A premium for control it either has to be a fully discretionary trustee. [26:07] You know as full discretion over decisions but the company stock which as we said then ask you is still a coach Rusty. Or any sitting on your keyboard right or have a majority of in of directors at the trustee can appoint. And again there was really no way of knowing that back then. [26:24] Yeah there's no way of knowing I think there's some logic behind all that that seems intuitive right because you're like well I sold a controlling interest. And it's for that for the people that understand like the difference in valuation so what happens is if you sell minority ownership position of your company, there's what we call a discount for lack of control that supplied to the actual valuation so you're really we really apply more discounts than we do premium so when you sell that you might get like a 10% 10% haircut just in addition to the marketability discounts you might have another 5% so you know that could be a significant amount of money and that's one of the things we talk about partial esops that, is at a disadvantage of a partially stop because you're going to sell it a less lack of control but when you move into that. [27:11] Controlling interest essentially as soon as you sell the actual, the majority stock then the idea behind it is that now you are no longer in control of the company you do not, as the owner you do not make the majority like the decisions are made by the majority owner so that in this case with the ESOP and then the way that the ESOP gets comfortable with that or the Department of Labor is that, they require your board of directors to have an independent board member. And then as Greg and I are talking about you don't want to be the trustee anymore because you want to show that the separation between all that so, it's just intuitive that kind of like that makes more sense right to be exactly no longer you are no longer in control that company, right so it's weird to see some motivations like that with saving a few you know I'm again it money is important and budgets are important but saving a few dollars here and there when you look at the, post ESOP structure, doesn't make a lot of sense when you think about these kind of issues and and what I like to think anymore to I'd say if you are an internal trustee your insurance cost for that your liability insurance is. It's going to be fairly significant I'm not sure you're really saving that much money in the end. [28:25] I don't think you are plus the plus just the anxiety that right you know you might have when you're like hey you know who knows what's going to happen if this thing gets kind of pulled and. You know if I go into the case a little bit deeper into a company that doubles in value you know I've seen I've seen it where the discounted cash flow method shows, the company has truly left like the historical model that had and now the forecast is pushing them up and I've seen it, be you know going out from where they are to double, so I think that one of the thoughts I had in that is it's possible that the company can grow in value there's no problem with that but I think you have to substantiate, the reason why and in this case are in any case it would have been, hey this is these are the the cash flow numbers and the risk rating numbers and the company actually is worth more, and so it can happen that you can grow your company you know that level and negotiate a higher value after you do the first stage transaction transaction it's just. They didn't substantiate I guess the points to make sure that yeah they were yeah they talked about the projections a little bit and they said. The projected growth wasn't. [29:40] All that significantly higher from what was occurring in the past and to justify that big of an increase yeah I think they were relying. A lot on the majority premium concept wow yeah and as we mean there are some of their there were some growth meaning they. [29:59] And they talked about having a new management team in place I mean they did. [30:04] They did some things at you know at the end of the day the district court looked at it and said it's just not enough to justify this high of a price. [30:15] And yeah they said hey that's you know it just kind of worked out that way again maybe if, it would have been interesting if the great bang process agreement had been in place back then the sea. If that would have changed anything or not, yeah well let's just say even even if he wasn't fiduciary responsible and he still was called up like the whole deal got called up to the Department of Labor you know he still would have had the ramifications of a possible purchase price. You know exactly so even if he's not yeah so in the worst case scenario okay he may not seller may not have to write a check by. Let's just say the only party that's liable for the fiduciary breaches the trustee and they say sellers not a fiduciary because there never was an ESOP and seller. I had no idea what the business was worth justifiably relied entirely on the advisors if. The Dol enters into a settlement agreement with the trustee or if there's a court decision that says yes the ESOP overpaid. [31:23] Well the result of that is going to be a reduction in purchase price and it's going to end up being. In most cases a reduction of the seller financing part mmm oh probably what would have happened if the neski himself hadn't been liable. [31:39] Was the courts just what I said okay we're reducing the purchase price by six million dollars and if they're still, six million dollars left of seller financing then they'll adjust it that's the end of that and then the trustee would be the one writing the check for the Six Million and then wouldn't and then would reduce the. The purchase price the seller financing part yeah yeah I mean I'm sure that the trustee would have a lot of pain and, sorrow through that process you know as as they should because that's their that's their job they have to go through the process correctly you know they do they do yeah that's that's their job and so yeah but ultimately you're right they're still ramifications, for the for the seller and that they may not get as much as they thought they were going to in the end. [32:25] You know and I don't know if this was the case with fanaa skis case but you know what I think about this a lot is is when you get we're kind of at that very if we look at just any ESOP, transaction whether we're in a multi-stage transaction or a we're going to do 100% Esau. When you when you go back and really look at the planning side and this is something that I really focus heavily on and I really counsel people to think about this heavily. Is if you are the selling shareholder and the advisor who does the feasibility models in valuation models is coming up with a number. [33:03] That just doesn't seem right I mean it's just like wow that's way more money than I ever thought I could get now granted that might not happen but I think it is something to be thinking about. You know my thought is is maybe get a couple opinions on that before if you don't feel comfortable with it like you know you know in the problem with that idea is that, I think when when I selling shareholder gets a big number in front of them. [33:27] They want they want to see a big number I mean they want to see that this thing's worth you know they thought it was worth five and then here comes a you know somebody in a very nice suit and tie with you know. All these credentials behind their name and then hey it's worth you know double than what you thought it was, they're probably going to not want to take another you know get another opinion on that right I mean so let's counter like the motivation is there to just take the bigger price but my thing is is that there's a reason why. That people will. Maybe float a number that's maybe bigger than it should be you know and I think that's where you have to be careful and that's part of a let you know that's really where I want to go to is this is, is caution you to think about the logic behind what they're doing and make sure you really do feel like you're being managed correctly. I agree and I would add trust your instincts on that and I've had clients who have said. I don't care what they tell me I'm not comfortable taking more than a certain dollar amount I don't want to put that much debt on my company, I want my employees to have every opportunity to succeed and so I don't want. [34:42] They have if I get a little bit more than I saw it but it ends up being excessive debt on the company that. Is a weight on the company that hurts them down the road that this doesn't feel right hmm go with your gut on that right and that'll end up some ways being the best investment you ever made because you'll still at the end of the day get a. [35:04] Transaction where you will be very pleased with the payout that you get and then when you see your company succeeding years down the road that will be well worth. Any. [35:18] You know extra amounts that you might have been able to squeeze out of the company that you weren't comfortable with exactly right and that and that's really one one thing I look at in general for companies as in just trying to be very, you know honest and candid is if the selling via the sell-side advisor it gets paid more money the more you get paid, if that's the way that they get paid then I think you have to really ask the question is their primary motivation is to get you the highest dollar amount. And in a strategic sale that's great because we don't have the Department of Labor regulations, but in an ESOP sale it's a little bit tricky because you're there's no there's not a lot of Independents when it comes to the way that they're giving you advice because it's going to be connected to how can they get the most money out of their of their fees and so, I think that you know just without saying like specifically. How it would work I just think you've got to be cautious when you look at how people get paid and making sure that you understand their motivations are not, you know always going to be to keep your risk down especially as we talked about they weren't even involved in the case when you get down to it, in they to me they have a lot of responsibilities and. You know they don't technically have fiduciary responsibility but they have a lot of responsibility to guide their clients correctly just because of ethics. You know so I think it's something to be thinking about yeah and I'd say. [36:45] Yeah I mean those are all fair questions again I think some of them would respond oh hey we've got, if our entire business is on the sell side we have a transaction blow up we can't afford it that hit to our reputation and take that for what it's worth but I guess the point ultimately is. Just be engaged right so if you have a cell site advisor that. Is telling you you can get more than what you think it's okay to push back it's okay to ask questions and say. Hey I always thought it was worth a little bit less what are you seeing that I'm not and if they show you. [37:25] Yeah here's the cash flow projections and here's the assumptions we made maybe they changed his perspective and if it works out great but if it's. If you think that that's aggressive then speak up and say yeah hey I respect that but I just want you know a little more conservative risk-averse approach or I want to yeah which again know if there's going to be a recession coming I just want to have a little, yeah think about it from nothing from a I've had case study you know cases where I've had like, the client you know sending it to the work that I've done to their you know fractional CFO and, to their tax partner and to there you know I'm that I'm being vetted out and I thought it was great honestly I was younger I welcome it, that me out like let's talk about it I mean if I miss something heavier right I think that's a great Point heavier CPA firm because they know your business probably as well as you do or pretty close to it and let them. Look at the numbers and if they think that it makes sense or maybe or probably a lot of times to say okay you know what. [38:29] I respect what you were doing you were being a little conservative but, don't sell yourself short either you build up this company maybe you don't want as much as what the advisor is saying but you can still ask for a little bit more than what you thought and it's still. [38:45] Going to be more than fair to the company so it's yeah I've had that case where you know in this is where I'm like, you know of course on one side you're like I'm just trying to make sure I'm giving good advice but the client had and their advisors were like this is a book value valuation like they're down here it's been Book value is is basically your net assets minus your liabilities if that's, you know you fair market value your net assets and they were like down here. And I'm like well you're not incorporating valuation methodology right your you know that's one way to look at fair market value but if it's if Book value is lower than the discounted cash flow model value. Then you fair market value is a discounted cash flow. You know in as long as your projections are accurate and you and everybody and I ask the questions to like do you guys feel comfortable with these are your projections the you know are you guys then the mama the models the math that all works together so, in other cases you know I've had it where people think they're here and I'm like look it's really here you know we're not, you're higher than you think and so but I think that process of vetting the valuation. Is extremely important and I guess the biggest advice here is just get as many people that you trust involved with the advisors that you're including, so that you can get everybody's perspective so that everybody can then kind of get through that phase and feel good before you move on to all these other steps with hiring the trustee and, valuation firms and building a big transaction so. [40:15] Yeah I agree get they like we said at the beginning get a team of professionals that you trust that you feel comfortable working with. And then don't be afraid to speak up ask questions you don't even even if those professionals may have credentials that you don't have mean you still know your business better than anybody and so. You know ask questions don't be afraid to speak up, it's you know that there's no bad questions in this process there aren't any and I'll tell you one thing I and I kind of just you know what you do and you wonder what people do other people but one of the things that I do is by the valuation model I put together, it includes a lot of granular detail. [40:54] What are the normalization adjustments in a schedule of those ad backs how did we get the what was the capitalization of earnings historical value let's analyze the balance sheet let's analyze working capital let's go through the projections and then going through all the details related to discounted cash flow, so instead of having a multiple like hey here's your number this is your ibadah here's your multiple on that and here's a quick. There's a lot of back there's a lot of detail on that and I think one thing I've learned is going through that with a client help similarly understand, the basic prep the basic understanding evaluation 101 I think that's part of my goal is to help them learn that. [41:30] What is your risk what's your capitalization rate where those numbers come from you know and if if you don't have good source data and all that and then it's probably not going to make a lot of sense so I think that's, that's what I would be looking for is having that type of detailed advice you know early on to make sure your, you're not going to go down this pathway and then you know have have any kind of issues down the road I agree I think that's great advice so, but what we're almost out of time so I guess with this Greg thank you so much again I think exploring the topic of seller fiduciary risk is a really important topic and hopefully, you know one of the things I was hoping in this would be we kind of like wipe off the table any major issues that people, you know misconceptions of hey this is I've got way more risk and to panic to even do any sub transaction, and I think we dealt with that anything else you would add to what we've talked about today that would be kind of rounded in and out. [42:23] No I think it goes back to what we said in the beginning is just have a have a team of professionals. You trust that who do this you know we do have the those process agreements now that provide more guidance than like Vanessa she had at his disposal so I have people who are familiar with those agreements. And then again ask questions be engaged in the process it can seem overwhelming but if you have a good group of advisers they'll be able to walk you through it and. Yeah you know when you get to the end you're going to be glad you did it'll it'll be very satisfying yep you know you'll like the payout you get but just seeing the Legacy that you leave it'll, it'll be worth it but you just got to be engaged in the process when you're going through it absolutely I think the other thing I would add is just the something that you said that I think is important be careful to be the trustee as the selling shareholders you know that be careful and really ask the questions about because I think that's one of the things that. With the new process agreement that Greg had talked about I think it's kind of clear that you're putting yourself into a more fiduciary responsible role than you might want and the end so. [43:32] Great have a professional independent trustee take on that role that will be money well spent absolutely so well thanks again Greg so with that I would just say thanks for tuning in today check us out at journey to an ESOP.com. If you like the podcast Please Subscribe and you know of course share it with a friend if they're thinking about an ESOP I think that's always very helpful so. With all that we'll see you on our next step on this journey to an ESOP.

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