Management Incentive Plan for a typical buyout transaction

Description
A practical example of a real life Management Incentive Plan. This is a typical MIP with capital structure including Sponsor and Management Equity, Loan Notes. The template does not include an LBO model and only covers the MIP structure and exit waterfall.


The model assumptions are entry EV, Exit EV, time to exit and MIP assumptions. The model is fully flexible.


Management Incentive Plan

A typical Management Incentive Plan (MIP) for a buyout transaction. The capital structue includes:
- Sponsor Loan Notes
- Sponsor Equity
- Sponsor Follow-on Loan Note to be used for an add-on acquisition- Management Equity contribution

The equity is split into Class A (Sponsor) and Class B (Management)
The exit waterfall takes into account the seniority of the instrument


Winding up Preference structure:
- Loan Notes with interest rate of 11% per annum
- Holders of Class A shares with preferred return of 11% per annum
- Holders of Class B shares with preferred return of 11% per annum
- To the extent there are proceeds remaining for distribution Management to receive 10% upside above the hurdle rate of 11% paid in the previous steps
- Management to receive additional 5% return above 2.00x of the total capital invested
- Management to receive additional 5% return above 2.50x of the total capital invested