Age: late 30s
HHI 3.1mil
Assets 12.5mil
Debt 4.5mil
Super 1.9mil.
Perspective: In the boring middle. Very much middle class in Australia at the moment. We hope to one day achieve chubbyFIRE
Tier 1 construction leaders on major infrastructure projects (CPB, John Holland etc.), what's your salary progression like at that level? And bonuses etc.? Is the juice worth the squeeze?
Hello fellow redditors
Looking for views from people with PE, portfolio company, management equity, or compensation experience.
We are the management team of a formerly family-owned, high-growth business. A global private equity firm recently acquired a minority stake, and they are now proposing a Management Incentive Plan / MIP that would pay out when the PE firm and founder sells.
For context:
-EBITDA is around $100m
-Revenue is around $130m
- High-capex business, somewhat similar to real estate/infrastructure but operationally intensive
- Lean management team, around 15 to 25 people
- Founder still owns the majority and is already very wealthy, so a full sale by the founder is not guaranteed
- PE investor likely wants an exit in 4 to 6 years due to fund life
- Some members of management may want to retire in 5 to 6 years
The current proposal from PE is roughly:
-2% to 3% of the fully diluted equity pool
- Only on returns above 2.0x MOIC / 12% IRR
- Based on a 6 to 7 year exit case
The issue is that the proposal does not feel very lucrative or motivating for management, especially given the hurdle.
Based on our research, it seems like 8% to 15% of the fully diluted pool can be more common in PE-backed companies, especially where management is critical to value creation and there is no rollover/co-investment by management.
We are trying to understand whether it is reasonable to ask for something like:
- 8% to 15% of the fully diluted pool (Ratchet system)
- Subject to a 12% IRR hurdle
- With little or no payout below the hurdle
- Proper leaver protections for vested awards
The other major concern is liquidity. What happens if the PE firm exits but the founder does not sell? Or if the founder never sells? If management has vested and someone is a good leaver after 5 to 7 years, does the MIP just remain theoretical forever? We cannot force the founder to sell, and some senior people may retire before a full exit.
Questions:
- Is 2% to 3% above a 2.0x MOIC / 12% IRR hurdle unusually low for a lean but important management team?
- Is asking for 8% to 12% fully diluted above a 12% IRR hurdle unrealistic, or within market?
- How should management think about MIP value when there is no guaranteed liquidity event?
-In a minority PE situation where the founder may not sell, what protections should management insist on before accepting a MIP?
Not looking for legal advice, just trying to understand what is commercially fair and market standard before we negotiate further.
Thanks in advance.