Topic 65
Management Warrant Incentive Plans
Equity manager investors of leveraged buyouts often employ management incentive plans to allow management to participate in the equity value of an acquired business that ultimately will be sold or go public after the investors’ holding period. Topic 65 explores the fundaments of a management warrant plan often implemented to align the interests of management with the equity investor.
MANAGEMENT WARRANT INCENTIVE PLAN DESCRIPTION
- Leveraged buyout (LBO) deals often contain management incentive warrant plans provided by the primary equity holder. Such plans entitle key operating management to additional equity in the acquired firm if targeted results are achieved over given time frames.
- A management incentive warrant is a right to purchase shares in the firm at a future price at a future date under certain defined conditions.
- Operating management is either allowed or required by the primary equity holder to purchase initial equity in the acquired firm at the closing.
- The purchase of initial shares ensures that management has skin in the game and entitles them to participate in the warrant program.
- The buy-in price is often subject to a slight discount from the fair market value of the shares at the time of purchase.
- Management is entitled to receive a specified number of warrants per owned share, depending on the level of achievement of targeted results up to the time of the exit event.
- The warrants are usually exercisable on an exit ...
