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
