Press Release May 16, 2018

Goodwin Reports on Latest Trends in Private Equity Rollovers and Incentive Equity in Middle Market Buyouts

Global law firm Goodwin announced today the release of its 2018 Rollover and Incentive Equity Survey. Produced by the firm’s Private Equity Group, the report focuses on a wide range of recent trends and issues that are critical to private equity investors, entrepreneurs and managers when negotiating a deal.

Now in its third iteration, and previously published in 2013 and in 2015, the survey analyzes terms of rollovers and incentive equity in middle market buyouts. Topics include the scope and nature of rollover securities, characteristics of sponsor securities, and terms of sellers’ rollover securities. The survey also reviews the structure and size of management equity incentive pools and offers data for incentive equity in terms of vesting equity and buyback prices.

“Rollover and incentive equity are among the most important economic aspects of any deal,” said John LeClaire, co-founder of Goodwin’s Private Equity Group. “Our 2018 Rollover and Incentive Equity Survey is a useful tool that helps facilitate discussions about which terms are appropriate in the context of a particular transaction. We look forward to continuing to partner with our clients and the study’s participants as we keep this research up-to-date.”  

“With each edition of our proprietary survey, we have continued to observe and capture the evolution of trends in the middle market,” said Jon Herzog, partner in Goodwin’s Private Equity and Technology Companies Groups. “Getting rollover and management incentive equity terms right is one of the principal ways a private equity investor can win over a founder or management team.”

Key survey highlights include:

  • When compared with the 2015 survey, the size of actual rollovers has decreased as a percentage of equity value. This is occurring as a result of a combination of the continued robust debt market and higher valuations, which enable sellers to rollover a meaningful amount of capital at a lower percentage of the total post-closing capitalization of the target company.
  • The practice of requiring some level of rollover has also decreased, down to 63% from just over 70% in 2015.
  • There has been a marked shift toward the use of profits interests to incent managers.
  • The average size of the management equity incentive pools offered by the sponsors responding to this survey was 9.51%, down from 11.3% in the 2015 survey and 12.6% in the 2013 survey.
  • A larger portion of the pools are being reserved for independent directors – and that portion is coming from the portions previously allocated to CFOs and other C-level officers but not from the CEOs.

The full report can be downloaded here.

Methodology: The 2018 survey was sent to Goodwin’s clients and private equity network with questions covering a wide range of issues critical to understanding the overall approaches and trends in this space. The survey was limited to transactions involving acquisitions of a controlling interest with no particular focus on industry segment or geography. Over 55 responses were received.

Goodwin’s Private Equity Group is a market leader in the expansive middle market sector, having earned a reputation for notable buyouts, growth equity deals and growth company representations in key sectors such as technology, healthcare, financial and business services, consumer and manufacturing. With over 200 private equity lawyers across the globe, Goodwin represents early through late stage investors and companies, lenders and financial institutions, covering the full life cycle of their investments and financings. In 2017, Goodwin closed the second most buyouts and exits of any firm in the U.S. and the third most in the world.