In my previous post , I flagged how employee stock ownership plans, or ESOPs, have become significant players in the middle-market M&A landscape, both as acquirer and acquired. ESOP acquisitions have doubled, driven by their strong financial performance, low debt, and long-term growth potential. At the same time, private equity firms and others have stepped up their acquisitions of ESOPS, recognizing their value.

At this time of rising M&A activity, I’m excited that ESOPs and other middle market companies can benefit from the National Center for Employee Ownership’s just-released guide to M&A that is broader in scope than its previous handbook. Several of my colleagues and I teamed with the NCEO on this edition, and it reflects our collective experience advising ESOP companies in literally hundreds of transactions.

The chapters we prepared detail the fundamentals of M&A as a business strategy, steps likely to result in M&A success, and central factors in structuring and financing deals. While the guide comprises substantial content and myriad details, underlying what we wrote are five high-level truths [ OR takeaways] that ESOPs considering M&A should keep in mind.

Know thyself. It’s vital for the ESOP company’s board and management team to understand why they’re pursuing M&A as a strategic tool. Generally, the impetus is to grow faster than the company can organically. They must be confident that acquisitions are the best growth strategy at this stage in their company’s life cycle.

A detailed acquisition strategy is essential for identifying opportunities that create long-term value. These aren’t developed overnight and often are part of a company’s multiyear planning process.

For example, Border States, an employee-owned electrical and industrial distributor we advised, builds long-term relationships to source deals rather than rely solely on brokers to identify potential acquisition opportunities, and most of its acquisitions reflect that relationship cultivation.

And Proponent, a global aerospace and aircraft parts distribution ESOP we advised, employs two strategic acquisition pillars: expanding its product portfolio and increasing its geographic footprint.

Given the risks – acquired growth is inherently riskier than building from within plus the significant time involved – don’t amble into M&A. Too often a company’s M&A process begins only when an investment banker appears with a potential acquisition and seeks to involve the ESOP in a competitive auction process.

Adhere to process. Execution of a successful M&A strategy will include a process to generate targets, another to qualify and compare them, and an approach for completing due diligence.

A word about targets: The most successful acquirors don’t wait for the phone to ring. They build deliberate relationships with potential acquisitions long before they are ready to sell, and they embed this mindset across their management team.

Before its first acquisition, for instance, Hypertherm – a maker of industrial cutting systems and software that we helped become an ESOP – identified substantial growth opportunities in underserved market segments globally. Having its ear close to the ground enabled the Hanover, N.H., company to be more proactive than reactive and to find companies outside the U.S. for half of its publicly announced acquisitions.

As targets present themselves, a successful vetting effort involves defining the ideal characteristics, ranked from most to least compelling, and using these yardsticks to grade potential opportunities. If a target company passes this screen, ESOP management and their advisors will complete a preliminary evaluation to determine whether the acquisition is strategically logical and financially feasible. This often involves a non-disclosure agreement, enabling the exchange of critical information.

Should the ESOP decide to proceed, management works closely with legal and financial advisors to negotiate and finance the deal, executing first an indication of interest and then a letter of intent. The latter indicates how much the ESOP intends to pay for the target, how to pay for it, and other critical considerations the seller needs to know. At this point, due diligence, deal structure and document preparation, and financing begin in earnest. Recognize at this stage that the commitments on management’s time are most intense and the risk of delay or process failure is greatest.

To derive the benefits the deal is intended to achieve, the ESOP will want to develop a sound integration plan to execute with the acquired company’s management once the deal has closed.

Being the buyer imposes a high bar. While being an ESOP is often attractive to sellers , it’s imperative to press the ESOP advantage. Often, ESOPs are attractive in terms of their superior culture and employee engagement, so management must know how to tell their ESOP story well. Acquisitions are just as much about the buyer selling themselves to the target as it is the target company selling themselves as a value-add to the buyer.

At the same time, the obligation to create value for employee shareholders is a responsibility that looms large for ESOP management, its board and its trustee. It is essential to help the trustee grasp the fairness of the transaction and, if your target is another ESOP, to help its trustee understand this for its employee shareholders as well.

Rejoice in the financing options available. They’re more plentiful for ESOPs than ever before. Historically, senior debt from a commercial bank in the form of a revolving credit agreement or term loan was the sole source of financing for ESOPs and employee-owned companies. But the spectrum of nonbank financing alternatives for middle-market companies has expanded dramatically in the last decade. While commercial banks continue as the chief financiers of new and existing ESOPS, nonbank lenders, mezzanine debt funds, structured capital and even minority equity now compete with traditional bank borrowing as alternative sources of growth capital, including for acquisitions.

Seek help. Especially if this is the ESOP’s first transaction. The complexities of due diligence, deal structuring, and financing put a premium on retaining experienced legal, financial, and accounting counselors who work together effectively. The seller almost certainly will be represented by expert counsel.

Surveying the landscape, ESOPs today do a better job explaining why the structure makes them the right choice for sellers. We’re also seeing more rational prices for companies and PE sellers increasingly looking to ESOPs as potential buyers – all factors favoring ESOPs as buyers.

As ESOPs increase their M&A experience, capabilities, and confidence, I’m confident we will see many more acquisitions by them, contributing to this being, as I’ve long anticipated, the Decade of the ESOP.