Private Equity Complexity
We advise both Private Equity backed clients as well Private Equity Houses. Employee share schemes for Private Equity typically revolves around unapproved schemes such as Unapproved Options, Growth Shares and JSOPs. This is because Private Equity backed companies typically fall foul of control rules associated with approved schemes.
However there can be circumstances where approved schemes such as SIPs can be used in Private Equity backed companies or where Private Equity is a minority shareholder.
Private Equity Considerations
Private Equity backed companies have an ownership structure where the PE house owns a controlling class of share and management of the company own a minority class of shares. This class of shares can be structured as a growth share.
There are a variety of other approaches however the key consideration is that Private Equity backed companies usually have a controlling shareholder who typically seeks an exit event around 5 years after the company is acquired.
As well as the legal structure private equity companies typically have a material amount of shareholder debt, bank debt and lease liabilities which has a valuation implication.
Buy and Build
Increasingly Private Equity backed companies acquire other similar companies. In some cases the acquired company retains its own management team and is its own statutory entity. This can create a situation where the use if equity incentives is complicated by the fact that the acquired company can reasonably be expected to be sold as part of a wider group, making more straight forward equity incentives less attractive. Nonetheless share schemes can be designed to incentivise the management of companies owned by the acquiring company.