Explanation of Advanced Private Equity Deal Mechanics and Ratios
Want to break into a UMM/MF buyside seat after graduation, got contacted re processes with some funds running analyst programs through HHs, background ivy, MF PE and EB RX internship experience in NY. Wanted to gather some thoughts and explanations on advanced private equity deal mechanics and ratios, for example:
- Envy Ratios
- Sweet Equity
- Supercharge Equity
- Creative MIPs
- Complex waterfall structures
What are some more interesting deal mechanics and ratios you see in practice? How do they work, what are they trying to achieve, and how often do they come up in practice?
Would really appreciate any insights!
Get all sort of 'fruity' structures.
I'm in MM London. One of our deals had like MIPs (or sweet equity) based on the results / returns on each division, and ratcheted.
Envy ratio is just a calc - so can do it on many things.
Usually, the principle is trying to align risk / reward - and make it contingent on returns. Comes up often - but the complexity varies.
I feel like the more people try to spend crafting perfect schemes, there is always something you do not think about. So, better to keep simple and focused on what you are trying to achieve.
Thank you for your response! Could you potentially elaborate on some of those more 'fruity' deal mechanics that you have seen during your time in MM PE? Have you heard of any unique other unique structures from people in the industry? Have you ever come across supercharge equity? Might be an American term, not sure. Heard about some funds trying to optimize pensions in portco's to extract value in recent months, how would do you think one can best approach this? Also in terms of investment strategy is your fund more of a value investor or thematic?
I actually think there are 'fruitier' things on growth investments / VC investments - typically just with things like conversion shares / preference shares etc. which provide varying degrees of seniority / protection based on returns (or milestones).
Supercharge equity - no, not heard of this specifically. Heard of accelerated vesting - which seems to be the same thing?
Pensions in PortCo's - definitely not heard of this being done
Strategy - sector focused. We say 'thematic' but I think that's BS science project stuff. In MM you do the deal if the returns work and work out how it 'fits' thematically after...
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