Restructuring of Management Incentive Plans

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