Performance bonus on equity rollover

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by a searcher from HEC School of Management, Paris
in Sydney NSW, Australia

3yrs ago

Performance bonus on equity rollover

We are considering using an equity rollover, and are trying to understand what IRR is used to calculate the performance bonus?

If we consider the simplified case where the EV = 10m, Vendor Equity rollover = 2m (20% equity), Investors = 3m, Senior Debt = 5m.

When we consider the performance bonus for the Searcher, is it calculated on the Investors IRR, or the overall investors (including the vendor) or is it something else?

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reply by an intermediary 3yrs ago
from The University of Chicago in Chicago, IL, USA

1. Vendor would want the same terms as the Investors unless you negotiate otherwise and if corporate structure allows that. Hence, bonus will be based on IRR to all investors including vendor.
2. In your example, total equity is $5 Million. Vendor rolls over $2 Million. Hence, vendor gets 40% equity, not 20%.