All of our businesses have been affected by the COVID-19 crisis. As a 20-year veteran of the M&A market, I have observed that crisis can mean an inflection point for clients.
Many of my clients are evaluating whether this is the right time to sell - even if it isn't the ideal time to sell.
These sales may result in the investors taking most if not all of the proceeds of the sale - leaving management less than committed to stay through a sale transaction.
I am being asked by a lot of boards to advise on this matter.
One way to maximize value and incentivize management is through a management carve-out or bonus plan.
A management carve-out plan is typically a pool of money that is paid to senior management at the closing of the deal. The size of the plan is typically between 5-10% of the net proceeds of the sale.
The structure and size of these plans vary based on each client's circumstance. My colleague Garret Galvin wrote this excellent short article on the topic.
If you are considering the sale of your business or would like to consider a management carve-out plan, please feel free to reach out to discuss with me at [email protected]
Getting management buy-in can be no small task in a venture-backed company, as multiple rounds of preferred stock financings may have significantly diluted the equity holdings of the management team.