What do typical management rollover plan terms look like? Well, management will typically own shares in the targets through existing long-term incentive plan structures before the PE acquisition. They are the management of the old company before it's purchased. Then during the PE acquisition, some of the existing management equity stake will be rolled over into the new company. Typically, 8 to 40% of compensation owed to management happens through the acquisition. I.e. their old shares in the old company are transferred into new shares in the acquisition. This offers tax efficiency as this delays the crystallization of any capital gain and the actual percentage is up for negotiation. A higher purchase price of the targets provides more of a gain to the existing management team, but the PE fund may demand a higher management role percentage to compensate.

However, what risks are there for management incentive plans? Firstly, instead of getting their money out at exit management may be asked to roll over a proportion of the equity position again, if the sale is a trade sale or a sale to another PE fund and management continuity is important. This can find management incentivized to stay with the company through a number of acquisitions. Also, exit decisions are generally made by the PE fund, independent of the management team of the company.