When a private equity buyer acquires a company, a key concern is making sure that the existing management team with all the knowledge and experience sticks around to grow it. That factor alone can be the difference between a great investment and a lackluster return. So it is critically important to create incentive compensation plans that align management with the new owners by giving them a meaningful stake in the company.
There are three principal reasons why PE investors want management to feel incentivized to minimize transition risk by ensuring the company runs smoothly after the change of ownership, to retain critical knowledge and relationships of key executives, and to ensure the management team feels aligned with the new owner’s goals and long-term objectives.
