Grading Our 2026 ESOP Predictions: Bank Lending, Private Equity Exits, and What Comes Next

Six months into 2026, Trevor Gilmore and Ben Spadt sit down together in person to revisit the ten ESOP market predictions they made back in January and check them against what's actually happened in the field. The result is a candid, prediction-by-prediction accounting of where the ESOP market stands at midyear — including which forecasts held up, which are still developing, and what the hosts are watching for the rest of 2026.

The conversation covers a competitive bank lending environment for ESOP formations, growing interest from private-equity-owned companies (particularly software firms) looking at ESOPs as an offload strategy, and a specific example of a Washington, D.C.-area boat manufacturer with the Navy as a major client that was sold by its private equity owner to an ESOP as an alternative to a continuation fund. The hosts also discuss the first cannabis company ESOP transaction of 2026 (completed by another advisory firm, in Pennsylvania), a Central Valley Business Times study on job seekers — particularly in construction — actively seeking out employee-owned employers, and how AI is being used by prospects and advisors as a fact-checking and research tool rather than a replacement for relationship-driven deal work.

The episode closes with Ben's five predictions for the remainder of 2026, including possible legislative movement on ESOP contribution limits and lending restrictions, continued growth of the 100% S-corp ESOP holding company model, and the potential for longer-term, higher-leverage ESOP financing structures.

Listeners will come away with a grounded, midyear read on where ESOP lending, legislation, private equity dynamics, and workforce demand are actually headed — not where they were predicted to go in theory.

Key Takeaways

• Bank lending for ESOP formations has become more competitive in 2026, with top-five and top-six national banks as well as numerous regional banks actively pursuing ESOP-related deals.
• Private-equity-owned companies, especially in software, are increasingly exploring ESOP sales as an alternative to a traditional exit or a continuation fund, partly driven by aging "zombie fund" portfolios that need liquidity.
• A Washington, D.C.-area boat manufacturer with the U.S. Navy as a major client was sold by its private equity owner to an ESOP and has performed well since the transition.
• Gen X business owners are increasingly using partial ESOP transactions to gain liquidity while keeping their companies independent, a trend the hosts expect to accelerate through 2027.
• The first cannabis company ESOP of 2026 has closed, in Pennsylvania, though valuation remains a complicating factor for cannabis deals generally.
• A Central Valley Business Times study found that job seekers, particularly in construction, are actively seeking out ESOP-owned employers, and platforms like Certified EO now list ESOP job openings.
• AI is increasingly used by prospects and their advisors to validate information during ESOP conversations in real time, but the hosts do not see it replacing the relationship-driven, judgment-heavy work of structuring and closing ESOP transactions.
• Architecture, construction, and engineering companies continue to lead ESOP adoption by industry, though the hosts note deals are increasingly coming from less traditional sectors as well.
• Building an ownership-oriented culture before implementing an ESOP is becoming more common, with frameworks like EOS (the Entrepreneurial Operating System) cited as one way companies prepare.
• Ben's outlook for the rest of 2026 includes possible legislative changes to ESOP contribution limits and lending rules, continued growth of the tax-advantaged S-corp ESOP holding company model, and potential innovation in longer-term ESOP financing structures.

Learn more:

• ESOP Radio: https://www.menke.com/esop-radio/
• ESOP Boot Camp: https://www.menke.com/esop-boot-camp/
• Confidential feasibility review: https://www.menke.com

Transcript

0:04

Hello and welcome to ESOP Radio. 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. But yeah, we first visited some clients, had a banking event that we spoke at. We even went to the Peterson Automotive museum. 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. 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? 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. So he's here visiting, and we went up to the Peterson Museum and basically did a tour, took all that, all the cars. 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. 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. 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. It's hard to just pick one. We did see one that was manufactured just down the road is here the zinger. 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. Exactly like the jet fighter there was. So. Yeah, that's what area that's made up in a Torrance, I believe. So, yeah, just up the 405 and so on. 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. And we did that yesterday here in Irvine. And parking at All Things is up. And today what we thought would be fun. 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. So Ben kick it off what we think back in January, what's going to happen. And the ESOP Industry. Yeah I mean you'll be amazed to how many of these came true I think. But first, Trevor, you said more banks will be willing to lend for ESOP formations. And I personally found that to be true. What about you? Absolutely. So banks who get it, who liked ESOP companies because they're strong cash flow. Right. Engaged employees, strong management, strong future. They're all in. 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. They are all in on the ESOP lending and tons of regionals as well. So the lending market is definitely competitive. And large which is a positive sign for our space. Something very positive. 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. Well you said regionals big banks. 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. And I don't have much experience or much exposure to that. You see that to be true? 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. Yeah. If it's a company is going to go ESOP, you need to be positive cash flow and strong cash flow and so on. So I do know it's anticipate there being more discussions in our space. I think that's going to be a huge trend. 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. 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. So might look to the ESOP exit. So I do anticipate more discussions to be had there. But. 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. So I don't know Ben

what sounds better: 4:27

you’re ESOP-owned or you fall into a continuation fund. Yeah. 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. Navy is one of their biggest clients. They were private equity owned and they kept trending down. 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. So we'll see if things like that continue. 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. 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. 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. It's if the company's better off independent and a lot of these are. 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. 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. used in many different ways. 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, and literally their assistant was there and that basically well, it was finance. 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? 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. driving ESOP transactions and so on. And kind of replacing a lot of that I am bullish on, A.I. in the space in terms of research, getting up to speed quick on industry, industry trends, valuation, so on. And of course the education component, that's a huge one. 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. Relationships matter more than ever, and people use AI as a validation tool, but not as an execution tool in our space. Absolutely. That human touch is very important. Additionally, employees becoming more aware of the Esop benefit and looking for employment at ESOP-owned companies, you know, anecdotally that's true. 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. 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? Right. 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 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. So, there was that study I forgot who conducted it in the Central Valley, Central Valley business Times. She said that actually with Central Valley, employees, especially those looking for, construction jobs, etc., were actually seeking out Esop companies. So I do see more of that. You know, you see players like, Certified EO they have that job database on their website. The job seekers can go on and basically find Esop opportunities. 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 gonna not only seek that, but ultimately demand that. You’re absolutely right. And I did forget about that Central Valley article. And study. That's good. Next. We will see our first cannabis Esop in 2026. And that has come to fruition. 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. 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. 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. Yeah, I forgot it was announced or not, Who did that? But, yeah, I expect to see more of that. And I've had a lot of conversations with cannabis companies over the past several years. 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. 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. Everything will be fine. Yeah. Next a perfect storm of baby boomers. And Gen Xers will be leaving in addition to pro Esop legislation. And I, on the pro Esop legislation piece that is very much true. There are bills in the House and the Senate and also the director, the secretary director of is EBSA is pro ESOP. 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. And you've heard it a billion times about the silver tsunami. But I have found now Gen Xers don't want to end up like their parents working until they're 70 plus years old. 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. Absolutely. That was one of the key themes at our bank event yesterday was Designing early. Right. 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. 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. 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. You know so many those deals blow up. 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. 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. So ESOP it is totally opposite, you have a high likelihood of a close. 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. 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. That's right. It's just one contingent. absolutely. Architecture, Construction, and Engineering companies will continue to lead the charge in the implementation of Esops. We're finding that to be true. I know a lot of our deals are in that space. 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. And then we always get surprised by industries. We pitched a payments company a couple weeks back and, we always get surprised. Right? 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. But we're seeing more out there too, that, you know, you know, could maybe go other paths strategic. You know, acquisition you know. So on. But looking at the ESOP that these really first flexibility and of course let the company deal with independence. Yeah. Speaking to culture we had building on ownership culture before the implementation of an Esop will become more commonplace. And that is true. And that was during the bank event that was brought up as well, that, you know, culture is huge part of it. 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. 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. And there are several other models like that, but, we're seeing that happen more and more. And in a lot of these calls that we take, you know, legacy's a big component. Liquidity is a big component. But also maintaining culture is another big component of those conversations that we're having. Absolutely. And culture can be so hard to define. But at a high level, what is a culture of a business? It is what makes the business hum, it makes it. What does it take for the employees to come up show of each day, be happy and perform and and so on. 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. You know we talk to ESOP candidate companies companies with strong followers. Often the ESOP is just a natural fit. Makes tons of sense. 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. 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. It's just a simple question- is business better off staying independent? And a lot is loaded into that question versus not. 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. Right. 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. And we are seeing business owners and business leaders contact us early on and want to do a lot of preplanning with that. 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. And that's always awesome conversations. Absolutely. 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. And we're seeing this in just being brought into more conversations by CPAs, bankers, wealth management advisors that are, 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 there's no longer the stigma of you do it yourself, if nothing else worked. Yeah. So it is a really good way for that legacy component to maintain, the company to remain in the hometown. 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. So it is now seen as a viable option. 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.

And ESOP option: 16:32

It's the endurance option. 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. 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. It's an awesome option because it's built to last. 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. CCI systems, those companies, and they've just endured over the time. And the Esop has enabled that, that growth to happen. It's also a thinking person's exit too, because there are so many options, strategies.. Our role in pitching these and making them happen is understanding the right solution. 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. 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. 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. One piece of legislation that I just read about today that has been proposed is removing the contribution limits from an ESOP plan. 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. I really also think that we'll just continue to see momentum. 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. 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. So 100% ESOP not paying tax if they’re an S-corp. Have all that debt paid off your cash flowing machine. 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. 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. And then I'll finish it off with the bank side. I think we're going to see Esop financing continue to thrive. And also maybe the idea of longer term, higher amounts as well. Right now it's still very much limited in terms of leverage. 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 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. Thanks everyone For joining us, check us out. Esop radio on LinkedIn. Of course. Your favorite podcast station. Apple, Spotify, YouTube. 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. And until next time, thanks and goodbye. Take care. Thanks for joining us.