It’s M&A season, with notably huge takeovers making headlines and deal activity expected to increase among all sizes of companies.Comcast CMCSA +0.43% is trying to buy Time Warner Cable TWC +0.51% for $70 billion; AT&T +0.03% agreed to buy DirecTV for $67 billion; and, bidding against only itself, Pfizer PFE -0.02% made a series of offers that finally exceeded $120 billion for AstraZeneca and was rejected.

Driving the deal activity is an abundance of cash on corporate balance sheets and, in many cases, an inability to produce revenue growth organically. So, if you’re a founder/owner/entrepreneur/CEO of a middle market company who has been looking forward to selling your business, either in part or in whole, it appears the next 18 months, barring an unexpected economic downturn, could yield serious offers.

Buyers come from two groups: private equity funds; and so-called strategic buyers, meaning your competitors. A third option, one you’ll have to initiate yourself, is the Employee Stock Ownership Plan, or ESOP. And below I’ll explain why now, more than ever, that ownership format often makes the most sense both for the selling entrepreneur and for the ongoing business. But first, I want to provide some crucial information on recent private company transactions that you should keep in mind.

The smart people at SRS/Acquiom handle escrow and other transaction processing work on hundreds of middle market M&A transactions and they regularly analyze their database of deals to look for trends. Their latest study, on M&A deal terms, could be alarming to a founder/owner considering a sale.

We’re all familiar with earn-outs, the carrot held out, so to speak, for some period after a company is sold to encourage its owner/operator to stick around and maximize performance. It’s a great concept as part of many exit strategies, but private equity and strategic buyers have perhaps gone too far in demanding that a large portion of the sale price payment be deferred and contingent on future performance, and over a longer period of time.

To be precise, SRS/Acquiom found that in 2013, the latest year studied, earn-out potential was equal to a full 40% of the closing payment, up from just 23% in 2010. That’s a lot more of the overall sale price dependent on events not entirely under the seller’s control.

Further, SRS/Acquiom found, only 7% of earn-outs in 2013 had a term of a year or less, versus 20% the previous year. Earn-outs involving a wait of 1-to-2 years grew to 43% from 33%. And earn-outs requiring a wait of 2-to-3 years increased to 36% of deals from 13%. (Buyers apparently are giving up on super-long earn-outs; those of 3-to-5 year duration also declined sharply.)

As I’ve written before, collecting on an earn-out agreement can be difficult, and some buyers are particularly aggressive about trying to hold back money at the last minute. The article linked in this paragraph also includes some problem-solving strategies for minimizing earn-out headaches regardless of the buyer.

Choosing your buyer carefully remains the best way to avoid an earn-out quagmire, and I’ve devoted my professional life to helping entrepreneurs structure ESOPs because I believe they’re generally better for the owner who’s selling and also better for the company and its employees.

First off, an ESOP transaction includes significant tax advantages. Selling 30% or more of your business to a C-Corporation ESOP, you can defer capital gains on the proceeds by re-investing in qualifying equities, meaning stocks. If the ESOP company is an S-Corporation, going forward it’s a pass-through vehicle and doesn’t itself pay federal or most state income taxes. And the ESOP owners, the employees, don’t pay taxes on their stakes until withdrawal of the investment.

These tax benefits mean an ESOP structure can sometimes support more debt than a standard private equity buyout.

Perhaps most importantly, following the conversion to an ESOP, many companies find workers become more productive because they’re owners. Waste is reduced. Good ideas bubble up. Things just seem to get done.

In terms of an earn-out, most ESOPs are structured to avoid the conflict seen in private equity and strategic buyer transactions. Three common scenarios:

– If you sell a portion of the company to employees through an ESOP and stay around to run it, there is no reason for sale proceeds to be held back.

– If you sell 100% of your company to an ESOP and finance part of the sale (take back paper) and stay around to run the company, that’s plenty of skin in the game going forward. ESOPs do involve equity incentives for sellers who provide seller financing, often in the form of warrants. In recent deals my firm has structured, sellers have retained between 15% and 40% of all pro forma equity growth in the company. That’s why they say, “have your cake and eat it to.” You get to sell today, and continue to participate in both the growth and vibrancy of the company you founded.

– Should you sell 100% of your company and transition out of the business, any earn-out arrangement is from people you know well – your company and your team. Gone are the other side’s lawyers and CFO perhaps manipulating forecasts, accruals, and other metrics to deny you an agreed-upon payment.