Since the inception of The One-Stop ESOP Blog in 2006 we have been exploring the metrics involved in estimating the Potential ESOP Universe. Some of the estimates include 150,000 - 300,000, another estimate of 150,000 - 300,000, and 400,000.
No one knows the number of companies that are reasonable candidates for ESOPs, but census data provides a place to start. According to the U.S. Census Bureau, there are 534,000 firms in the United States with 20 or more employees, the size most experts agree is a rough minimum for an ESOP to be likely to make sense. ESOPs are not possible at 85,000 of those organizations (including nonprofits and governmental agencies) and are nearly impossible for the 20,000 farms on the list. Another 84,000 are partnerships. These would almost all be medical, law, and accounting partnerships, but a few could be eligible for an ESOP. Based on Manta data, about 100,000 firms with over 20 employees are restaurants. Since their high turnover makes ESOPs difficult, most but not all should be excluded from the count of potential ESOPs.
In other words, a very approximate count of the number of ESOP candidates in the United States is 260,000. The NCEO's current estimate for the number of ESOPs and ESOP-equivalent plans is 10,900, which is 4.2% of the potential pool.
Using the recent NCEO estimate, the ESOP Penetration Rate is 4.2%. Given the significant benefits of Selling to an ESOP, the ESOP community should take a fresh look at Why the Number of ESOPs is not Growing at a Faster Rate. Some of the reasons I cited in 2007 as reasons the number of ESOPs is not growing at a faster rate are still valid five years later:
Many ESOP companies are acquired (with the ESOP being terminated) due to the success of the company, ultimately decreasing the number of ESOP companies.
Many companies and professional advisors are unaware of the benefits of ESOPs.
Many professional advisors without ESOP expertise will lean towards business transition alternatives that allow them to share their expertise and receive compensation for it.
Many companies are not performing any type of succession planning and other business transition alternatives are being implemented as a result.
For more information on the many ESOP benefits, check out our series on Selling to an ESOP and the excellent NCEO analysis Are ESOPs Really More Complex Than Other Ways to Sell a Business?.