Restructuring of Management Incentive Plans

Restructuring of Management Incentive Plans

RESTRUCTURING OF MANAGEMENT INCENTIVE PLANS

Services

Management Representation Expertise

Restructuring of Management Incentive Plans

Aftercare

Other services

There are many reasons why a Management Incentive Plan (MIP) may need to be restructured during the lifetime of a Private Equity investment, including:

• Changes in the Senior Management Team
• Changes in the Portfolio Company business or prospects
• Changes in the Private Equity investor dynamics
• Macroeconomic changes (eg COVID-19)

Restructuring any MIP usually involves a complex combination of fairly typical problems and more unique problems, including:

• Picking the right time to restructure and re-set: not going too early but not leaving it too late
• How to properly value the investment in the business: now and at the time of an Exit
• What’s the right trajectory to set for growth and reward
• Understanding the accounting implications and constraints
• How to protect the tax efficacy of the existing structure: for all stakeholders
• How to persuade third parties to give any necessary consents
• How to communicate all this to, and achieve buy-in from, all MIP participants

At PriestleySoundy, we have unrivalled experience and expertise in this area. What sets us apart from our competitors in particular, is a combination of:

• Our expertise and experience
• Our creativity and solutions-seeking approach
• Our trusted deal-facilitating reputation
• Our ability to win the hearts and minds of MIP participants

Much has changed since the last restructuring cycle (in 2008-10), including:

• Greater understanding and predictability of HMRC’s approach
• The growing internationalisation of Senior Management Teams
• The continuing evolution and hybridisation of MIP structures (especially US influences)
• In some sectors, increasing regulatory oversight and pressures
• The influence of Limited Partners (LPs) over Private Equity funds and their investments
• The development and impact of Environmental, Social & Governance (ESG) policies
• The burgeoning array of different investment structures and types of investor
• An ever-increasing universe of debt providers, and more sophisticated debt structures
• Tax: new laws and a new (anti-avoidance/abuse) environment
• The growing use, acceptability and sophistication of insurance products

Potential restructuring solutions include (alone or in combination):

• Adjusting debt in the structure
• Amending equity rights
• Cash bonus payments
• Option schemes
• Stop-loss payments