Across the middle market, PE sponsors are increasingly investing in Employee Stock Ownership Plans, or ESOPs, drawn less by sizzle and more by something almost old-fashioned: reliable cash flow and people who stick around, according to industry sources.

“Many private equity firms are prioritizing businesses with durable cash flow and experienced management teams,” said George Barsom of middle-market M&A advisory firm Auxo Capital Advisors. ESOP-owned companies often fit that profile, he noted, particularly in a market where exits are taking longer and financing costs remain elevated.

What was once a niche strategy is starting to look more like a repeatable play, the sources said.

Barsom pointed to Morgan Stanley Capital Partners’ majority acquisition of Olsson, an employee-owned engineering and design firm, earlier this year. “What stood out to me there is that a large middle-market sponsor was willing to lean into an employee-owned structure with a real reinvestment component, instead of viewing it as something that limits control or growth.”

In June 2025, Mosaic Capital Partners invested in Ickler Electric through a newly formed ESOP, which Lafayette Square helped finance. “That one is interesting because it shows private capital being used to support an employee ownership structure in a business that is pretty core to its end markets, rather than pushing it into a more traditional buyout,” Barsom said.

Also, Apis & Heritage Capital Partners converted Consolidated Construction Services to employee ownership in late 2024, and Southeast Acquisition Capital sponsored A-R-T & Associates’ transition to an ESOP in 2025.

“It does not feel like a one-off anymore. It is showing up more consistently, especially in the middle market,” Barsom noted.

Firms like Long Point Capital have spent more than two decades executing ESOP recapitalizations, building portfolios that include companies such as Atlantic Plywood and Sunbury Textile Mills. American Capital was another early adopter of ESOP-backed buyouts in the 1990s, helping to establish the model’s credibility within private equity.

The trend is also showing up in large, visible transactions. In 2025, Vermont Information Processing, a software provider for beverage distributors, was acquired by Warburg Pincus in a transaction reportedly worth USD 1bn, including debt. VIP was 100% employee-owned through an ESOP. Press reports noted that hundreds of employee-owners stood to receive substantial payouts, with some long-tenured workers expected to receive seven-figure amounts.

Today, a growing advisory ecosystem is helping institutionalize the approach. Firms including Lazear Capital Partners, CSG Partners, and Chartwell Financial Advisory act as intermediaries between founders, trustees, lenders, and more frequently sponsors.

Proof in practice

ESOPs offer an alternative that balances liquidity with legacy. Tax advantages further enhance the appeal. “If the buyer doesn’t have to pay federal tax, it can afford to service more debt,” said Peter Sanchez Guarda, a finance attorney and founder of consulting firm Turnkey Family Office, allowing sellers to achieve stronger valuations even in a higher-rate environment.

“ESOPs help solve a practical deal-making problem,” said Gil Mermelstein, CEO of business and technology consultant West Monroe. In a market defined by higher interest rates, fewer strategic buyers, and persistent valuation gaps, these structures can bridge pricing expectations and improve deal economics.

His own firm offers a real-world example of a hybrid approach to the trend. West Monroe transitioned to 100% employee ownership at the end of 2012, restructuring the business as an ESOP trust so that all US employees were beneficial owners. In late 2021, the firm took on a strategic investment from MSD Partners that resulted in a 50/50 ownership split between the private capital sponsor and West Monroe’s employee owners.

Management at West Monroe has said the purpose of that investment was to support the firm’s next phase of growth — funding acquisitions, expanding internationally, bolstering product development, and advancing employee skill-building programs — while still maintaining employee ownership at the core of its culture.

Kyle Feng, head of M&A at Alton Industry and a former investor who participated in PE-backed ESOPs, said full or partial investments in ESOPs have a significant side benefit: institutionalizing employee incentives.

“It ensures internal cohesion, making investors worry less about operational risk and less dependent on short-term exit timing,” Feng said.

“In an ideal scenario,” added Shawn Cole, president and co-founder of executive search firm Cowen Partners, “you have a motivated seller and an invested workforce, creating a true win-win.”