Expansion of M&A Activity Signals a New Era for Employee Stock Ownership Plans

Global merger and acquisition (M&A) activity reached record levels in the first half of 2026, with total deal value surging to $2.8 trillion. This surge has reinvigorated interest in the middle market, where private equity firms and corporate acquirers are re-entering the fray. A notable participant in this growing landscape is an unexpected player: employee stock ownership plans (ESOPs), which are now actively both acquiring and selling businesses.

The number of businesses acquired by ESOPs has approximately doubled in recent years, according to the National Center for Employee Ownership. Meanwhile, ESOP-owned companies—once overlooked—are now attracting attention from private equity firms and strategic buyers.

With M&A activity breaking records, ESOPs have emerged as new players, both as acquirer and acquired. This Q&A explains why.

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Recently, I had the opportunity to speak with Stephen Morrissette, founder and president of Providence Advisors, a consulting firm specializing in growth strategy and M&A process development. He joined me to lead a seminar for ESOP leaders on leveraging M&A as a growth strategy. This Q&A with Steve, also a visiting professor on M&A strategy at the University of Chicago’s Booth School of Business, explores why ESOPs are taking on a larger role in middle market M&A.

Mary: What explains the recent uptick in M&A interest by and in ESOPs?

Stephen: A key to M&A success is for the acquirer to be a strong performer with a thriving core business. Many, if not most, ESOP companies fit this profile. They are often fully invested in value-creating projects that strengthen core operations. They also typically maintain significant cash reserves and low debt levels. Additionally, given ESOPs’ long-term, fiduciary stewardship focus, their executive teams prioritize sustainable, low-risk growth strategies. Simply put, many ESOP companies are well-positioned to make acquisitions.

I’ve also observed an increasing commitment by ESOP executive teams to develop professional M&A capabilities. I’ve worked with numerous ESOP firms to build their M&A processes using best practices seen at Fortune 500 companies—even adopting some strategies from the private equity sector. These efforts have boosted executive confidence and consistently delivered superior results.

Mary: What benefits might ESOPs gain by incorporating M&A into their growth strategies?

Stephen: Like any business, ESOPs should consider M&A as a key growth tactic. Data indicates that growth at high-performing companies is often roughly split between organic expansion and inorganic means. Acquiring non-ESOP businesses allows ESOPs to expand their reach while converting the acquired company’s employees into employee-owners. This is a streamlined, efficient way to accelerate the spread of employee ownership across the U.S.

Mary: How significant could the rise of ESOPs as both buyers and sellers be reshaping middle market dealmaking?

Stephen: Awareness of the ESOP model among middle market business owners is on the rise. My research shows that over 95% of these owners now understand ESOPs, with nearly 40% open to considering one as an exit strategy. For non-ESOP clients, I routinely include ESOP conversion as an exit option, as it often aligns more closely with the seller’s long-term goals than alternatives like private equity or strategic sales.

Interestingly, small to medium-sized businesses (SMBs) are twice to three times more likely to sell to a private equity firm than to an ESOP. However, ESOPs are increasingly effective at educating sellers about their unique value proposition. In a recent transaction, our ESOP client acquired a business and successfully converted its employees into owners, all while securing a fair valuation. The seller’s team was thrilled to see their employees gain equity stakes and align with the company’s long-term vision.

Mary: What general advice would you offer ESOP firms considering M&A opportunities or responding to acquisition interest?

Stephen: ESOP-owned manufacturers are particularly well-suited to capitalize on current trends such as supply chain reshoring. Their competitive advantages in recruiting and retaining talent stem from strong workplace culture and comprehensive compensation packages. These benefits make them attractive buyers for businesses seeking stability and shared ownership.

On the acquirer side, ESOP companies need to carefully assess their fiduciary responsibilities. While strategic investments—such as acquisitions—require careful planning, ESOPs must balance risk with the long-term goal of maximizing shareholder value. Effective communication about these objectives is critical to maintaining employee trust and alignment.

An internal challenge many ESOPs face is the lack of mature M&A expertise, though this is an area that can be addressed through training or external advisory support.

Mary: What are the key advantages and challenges for ESOPs in acquiring businesses?

Stephen: Most ESOP firms I’ve worked with meet Jamie Dimon’s criteria for pursuing acquisitions: “When you have strong performance in your core business.” Challenges can be internal or external. Internally, ESOP executives must carefully weigh strategic decisions against their fiduciary duty to employees. Strategic moves like acquisitions involve debt and risk, and executives are often cautious about the implications for employee-owners.

On the external side, many potential sellers—particularly those represented by advisors or investment bankers—lack a full understanding of ESOPs. To counter this, ESOP firms should proactively educate prospects about the benefits of selling to an ESOP. A one-page explanation of the ESOP model and its alignment with employee ownership can be highly effective. Additionally, case studies and testimonials from previous sellers can demonstrate the tangible advantages of choosing an ESOP as a buyer.

Mary: What does the future hold for ESOP-driven dealmaking?

Stephen: I’m optimistic about the future of ESOP M&A. As these firms gain more experience, confidence, and expertise in M&A, their presence in the market will grow. As valuations stabilize, ESOP companies will become even more competitive as buyers. Additionally, by improving their ability to communicate their unique value to potential sellers, ESOPs may begin attracting more businesses prioritizing employee ownership as an exit strategy.

Mary: We couldn’t agree more. In our ESOP advisory practice, we consistently emphasize the benefits of selling to an ESOP alongside other options: (1) implementing an ESOP, (2) selling to private equity, (3) selling to a strategic buyer, (4) dividend recapitalization, (5) management buyout (MBO), and (6) maintaining the current structure. Selling to an existing ESOP can deliver a triple win—benefiting sellers, the company, and employees—while aligning with the seller’s core objectives.

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