Incentive innovation

Firms try the 'equity freeze'


Happy Monday. Here’s what we’ve got today…

  • A look at a new approach to portfolio company incentive grants

  • Plus, Blackstone’s potential Alinamin exit attracts interest


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The latest in incentive alignment:

Incentive alignment has always been a key part of the private equity playbook as firms try to motivate management teams with meaningful performance-based upside (that’s also tied to the sponsor’s own outcome).

Now, a new incentive strategy is gaining popularity.

According to Matt Mauney, a partner in Goodwin’s private equity group, firms are increasingly turning to the ‘equity freeze’ as a tool to manage portfolio company employee departures.

Sponsor-backed management teams can generally expect to receive the lion’s share of their pay packages only at exit, as opposed to the comparatively higher year-to-year cash compensation on offer for executives at public companies.

This compensation typically takes the form of an incentive equity grant, restricted stock units, or profits interest units, all of which can be tied to time and performance-based vesting criteria. The bulk of the incentive award is generally granted at the time of the initial acquisition.

Years-long hold periods invariably result in some amount of headcount turnover among grant recipients. Given firms’ general preference to limit further equity upside for employees no longer with the business, a typical response is to repurchase the employee’s vested grant at the current point-in-time valuation.

Depending on the situation, that can be problematic for sponsors:

Repurchasing vested equity with cash can be a challenge if liquidity is tight, particularly in the current environment.

The alternative of a note repurchase avoids the cash outlay but locks the sponsor into a PIK payment to the departed employee, who would also pick up the benefit of liquidation preference, moving above even the sponsor in the capital structure. At the same time, they would become insulated from future declines in equity value (given they no longer hold an equity instrument).

The new ‘equity freeze’ alternative to incentive award structuring has become popular as a means to avoid these standard repurchase downsides.

In the freeze, the “future value of a departing employee’s equity is automatically capped at its value as of the time of departure,” says Mauney.

This compensates the employee for their contributions prior to exit, but prevents them from benefitting from unearned appreciation after they’ve left. It also ensures they continue to participate in any future downside—which could be meaningful if it’s a key executive on their way out.

That dynamic maintains some level of ongoing incentive alignment even after exit: leavers with a meaningful vested interest have their own economics tied to the business through the hold period.


Waste Management (NYSE: WM) agreed to acquire Stericycle (Nasdaq: SRCL), a provider of regulated medical waste services, for $7.2 billion.

Becton, Dickinson (NYSE: BDX) agreed to acquire Edwards Lifesciences' (NYSE: EW) Critical Care product group for $4.2 billion in cash.

OneWater Marine (Nasdaq: ONEW) approached MarineMax (NYSE: HZO), a recreational boat and yacht retailer, with an all-cash $2.5 billion takeover offer, per Bloomberg.

Blackstone is considering the sale of Alinamin Pharmaceutical, a Japanese consumer health company, which could be worth around $1.9 billion and has received interest from CVC Capital Partners, EQT, and MBK Partners, per Bloomberg.

New Mountain Capital invested in Consor, a transportation and water infrastructure engineering firm.

Greenbriar Equity Group acquired Renuity, a tech-enabled home services platform, from York Capital Management's private equity group.

Thermal Technology Distribution Solutions (TTDS), a maker of industrial temperature management products backed by Gryphon Investors, acquired Southwest Heater and Controls, a Dallas, TX-based distributor of industrial electric heaters and sensors.

Pershing Square Capital Management, the hedge fund run by Bill Ackman, sold a 10 percent equity stake for $1.05 billion to an undisclosed investment consortium.


Tech, Vertical SaaS, & Misc. Enterprise

Ashby, a recruiting platform, raised $30 million in Series C funding led by Lachy Groom, with participation from Elad Gil, F-Prime, and Y Combinator.


SiFi, a Saudi Arabia-based spend management platform, raised $10 million in seed funding led by Sanabil Investments and RAED Ventures, with participation from anb seed, Rua Ventures, Byld, KBW ventures, Khwarizmi Ventures, Seedra Ventures, and Tech Invest Com.

Sibill, an Italian SMB fintech, raised €6.2 million in seed funding led by Keen Venture Partners, with participation from Founders and Exor Ventures.

Industrials, Greentech, & Other

Neural Design, a Swiss EV startup, raised $27 million in Series B funding led by Forestay Capital, with participation from Alven, Constantia New Business, HTGF, and Aster Group.

ZeroMark, a defense tech startup developing AI-powered auto-aiming systems, raised $7 million in seed funding co-led by Ground Up Ventures and Andreessen Horowitz, with participation from NY Ventures.


Town Lane raised $1.25 billion for its debut opportunistic real estate fund.

Pemberton Asset Management is raising more than $1 billion for a direct lending fund focused on sponsor-backed add-ons.

Creandum raised €500 million for its seventh venture fund.


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