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Reasonable Management Equity Percent in PE Company?

I am part of a PE Company that is going through some restructuring and thus giving us a chance to readdress our equity/option percentage; We are profitable, $15M revenue; is 25% equity/options a fair figure?  To much?  Looking for some justification to give to PE firm.

Answers

Anonymous
(Consultant) |

I am currently working with a portfolio company of a VC. The board and management have targeted 18%. Hope this helps.

Anonymous
(CEO) |

That is way too high, and will depend on many factors, including your seniority with in the firm. You are asking for a piece of the GP's carried interest? What equity do you currently have? Need to be more specific.

Anonymous
(CFO) |

Currently, management has 10% of a slightly larger company; the current company is splitting and the PE group has asked management for our perspective as the legal structure is being changed slightly. 25% is high, but the thought is to start high and negotiate from there. The company was purchased by the PE company 12 months ago and the CFO has been there a little less than six months.

Anonymous
(CFO) |

20% is a fair number in my experiences. 25% would be very generous and 10% would be an injustice.

David Howell, ASA, MBA
Title: Principal, Plante & Moran, PLLC
Company: Plante Moran, PLLC
(Principal, Plante & Moran, PLLC, Plante Moran, PLLC) |

We commonly see 10% to 15% for management. Keep in mind that the investor and capital providers expect to get a certain ROI, so the size of the management grant reduces their return. Alternatively, you might also look into some level of carried interest that would apply once ROI thresholds had been met.

Anonymous
(CFO) |

Good point David on the carried interest. Getting a carried interest is always a good idea if you can get it! Lower percent for management with an upside for performance.

Kirk Westbrook
Title: VP - Tech Banking Group
Company: US Bank
(VP - Tech Banking Group, US Bank) |

As others have said, it is not just about the percentage but the total compensation package. In general, 20% for the aggregate pool is a fair general allocation that is spread through the entire pool that qualify and is prorated on experience, job function and tenure. If there is higher risk with less cash compensation, the amount may increase for example. It will be morphous based on the facts specific to the opportunity. Accordingly, it is very typcially a negotiatied amount, which sounds like it will be in this case as well.

Anonymous
(CFO) |

Thank you Kirk. Unfortunately, negotiation room may be slim. Our PE group has said anything over 10% is completely unheard of and they have never done it. Also, they have never done a carried interest with management. That is their story and they are sticking to it!

So, I guess our choice is we either take it or leave.

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