10+ hours of podcasts, in 5 minutes.
6 quotes from 1 episode on Private Equity Funcast, each with a timestamped link to the source.
Paul Stansik states that management equity payouts depend entirely on capital stack mechanics over a 5-year hold. Quoted management percentages between 0.25% and 2% apply only to the residual pool after senior debt takes the first exit dollars.
Ambitious performance hurdles demanding extreme multiples on current valuations signal a high risk of zero payout.
“Another one is just like if the hurdle seems really really ambitious. If it's all performance vesting and the performance vesting is some crazy multiple on where they're at today.”
Probing past deals reveals whether a sponsor found ways to pay the management team during a sub-target exit.
“Tell me about a time when you had a tougher deal and the team came in and did a good job and it didn't quite get to outcomes for the incentive equity, but they were selling to another private equity firm in a strategic and they still got paid. How did that work?”
Management compensation depends on an operator's position within the capital stack over a 5-year run. Debt sits at the top of this stack and takes the first dollar, leaving a smaller residual pool for common equity holders.
“And it does not mean you get half a percent of every dollar that comes back when you sell the business because of that progression or the word that gets thrown around a lot. You've seen our lingo episode is the stack, right? The debt is the top of the stack.”
From Why a 1% Equity Pool Slice Yields Far Less Than Expected
“It that pays to understand that and to ask like what part of the stack am I in and what percentage am I getting of that part because that's what dictates what shows up in your bank account at the end of that 5-year run.”
From Why a 1% Equity Pool Slice Yields Far Less Than Expected
Evaluating sponsor projections requires testing multiple exit scenarios across the deal team. Checking good, better, and best outcomes with more than one person reveals whether the internal models account for missed growth targets.
“If possible, I think it's a good idea to ask that question to more than one person…”
“Make sure you get the good, better, best because if it's one case and this is what we're going to do, then it's like okay well what if we don't do that? Just a little bit of sensitivity proves that the person has thought about it.”
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