A high-quality partnership between a CEO and a Private Equity firm can be one of the most rewarding professional and financial experiences of an executive’s career. This partnership is fostered through one of private equity’s key differentiators, the development of an informed ownership mindset amongst management, board, and shareholders.
Management’s ownership mindset is supported by Co-Investment and Management Incentive Plan agreements, negotiated between management and the Private Equity firm. A well-designed scheme aligns management with Private Equity across a wide span of outcomes and is critical in achieving an optimal partnership.
The CEO’s Dilemma
At Liberty, we have advised 750+ management teams who have successfully negotiated with 150+ Private Equity and other Financial Investors in $250 billion+ worth of transactions. In doing so, we commonly observe the following three critical issues that impede CEOs from efficiently reaching an effective, enduring Management Agreement.
- An Unnecessary Reliance on Board Discretion on issues such as leaver provisions and follow-on funding can diminish trust, damage relationships, and misalign partnerships.
- A Lack of Standardisation and Transparency on management terms make it difficult for CEOs to effectively compare proposals and make appropriate trade-offs to reach an agreement with Private Equity.
- Insufficient Management Preparation, Process Structure, and Advice add transaction risk, jeopardise relationships and trust, and drive sub-optimal agreements.
