Who gets what at exit?
Run the exit waterfall for a sponsor-backed company: repay net debt and deal costs, redeem the preferred with its accrued coupon, pay the management incentive pool above its hurdle, and split the rest across sponsor, rollover and co-invest. See proceeds, MOIC and IRR for every holder.
- Preferred is covered in full and every common holder is above cost.
Proceeds by holder
| Holder | Invested | Proceeds | MOIC | IRR | % of total |
|---|---|---|---|---|---|
| Preferred equity | $40M | $64.42M | 1.61x | 10.0% | 31.6% |
| Sponsor fund | $51M | $111.88M | 2.19x | 17.0% | 54.8% |
| Management rollover | $9M | $19.74M | 2.19x | 17.0% | 9.7% |
| Management incentive pool | — | $7.96M | — | — | 3.9% |
| Total | $100M | $204M | 2.04x | 15.3% | 100.0% |
Proceeds as exit value moves
Columns: exit enterprise value from −30% to +30% of your case; net debt held constant.
| Holder | −30% | −20% | −10% | 0% | +10% | +20% | +30% |
|---|---|---|---|---|---|---|---|
| Exit EV | $210M | $240M | $270M | $300M | $330M | $360M | $390M |
| Preferred equity | $64.42M | $64.42M | $64.42M | $64.42M | $64.42M | $64.42M | $64.42M |
| Sponsor fund | $43.67M | $66.9M | $89.39M | $111.88M | $134.37M | $156.86M | $179.35M |
| Management rollover | $7.71M | $11.81M | $15.77M | $19.74M | $23.71M | $27.68M | $31.65M |
| Management incentive pool | $0 | $2.08M | $5.02M | $7.96M | $10.9M | $13.84M | $16.78M |
| Equity value | $115.8M | $145.2M | $174.6M | $204M | $233.4M | $262.8M | $292.2M |
Acquifolio keeps investors, commitments and capital events per fund and company, and prepares distributions reconciled to the cent.
A simplified waterfall: one preferred class with an annually compounding coupon, common split pro rata by ownership, and the MIP as a profits interest above a single threshold. Real shareholder agreements add vesting, leaver provisions, ratchets, catch-ups and tax effects. Not investment, tax or legal advice. Everything runs in your browser and nothing you enter is stored or sent.
How it works
- Equity value
= exit EV − net debt − transaction costs(costs as a % of EV), floored at zero. - Preferred is repaid first at its accreted value
= amount × (1 + coupon)^years, or whatever equity is available if that is less. If participating, it also takes the share of residual value you enter. - The common pool is what remains. The MIP is modelled as a profits interest: it receives its % of the common pool above a threshold of
hurdle MOIC × common invested. At 1.0x the threshold is the value of common at entry. - Common holders share the pool after the MIP pro rata to their ownership. MOIC is proceeds ÷ invested; IRR assumes one investment at entry and one distribution at exit over the years held.
The sensitivity table re-runs the whole waterfall at exit EV from −30% to +30%, holding net debt constant.
Questions
How is a management incentive plan usually structured in a buyout?+
Most mid-market sponsors grant management 5–15% of fully diluted common as sweet equity or profits interests (in the US, often LLC profits units). The interests only have value above a threshold, usually the equity value at entry, so management shares in value created rather than value bought.
Why does preferred equity hurt management and rollover returns so much?+
A compounding coupon sits ahead of common. At 10% over five years, the preferred accretes to about 1.61x its face value before common receives anything, so a modest exit can leave common, and the MIP, with little or nothing even when the sponsor's blended return looks acceptable.
What is the difference between participating and non-participating preferred?+
Non-participating preferred receives its accreted value and nothing more. Participating preferred receives its accreted value and then also shares in the remaining value alongside common, which is why it is sometimes called double-dip preferred.
Does the sponsor's preferred count in the sponsor's MOIC here?+
No. Preferred is shown as its own line so the economics of each instrument stay visible. If the sponsor holds the whole preferred strip, add the preferred line to the sponsor line to get the blended sponsor return.
What does this calculator leave out?+
Vesting and leaver provisions, ratchets, catch-ups, escrows and earn-outs, management loan notes and tax. Use it to test the shape of the economics before the lawyers draft the shareholder agreement, not to compute final distributions.
From headline enterprise value to the cash the seller actually receives: net debt, debt-like items, NWC true-up.
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