Private equity-related differences

US private equity buyers who are not used to the CEE markets may come with a slightly distinct perspective on management equity:

Austria

  • Leavers – “rollover” equity. In the US, private equity investors usually have a call on any termination of employment on "rollover" equity (the equity participation purchased with the proceeds of sale). It may be possible to negotiate for “good leavers” (often death, disability or termination without cause) not to have their rollover equity subject to a call option or otherwise a call at fair value is common. A “bad leaver”, such as a voluntary resignation, would usually receive either fair market value or the lower of fair market value and the amount paid, depending on the private equity house concerned. Sometimes, good leavers in the US are given the right to require the company to purchase their rollover equity.
  • Options or profits interests (US) vs. sweet equity (CEE). US transactions favour management incentive equity participation usually through share options or profits interests, which can often be on standard form. This stands in contrast to the sweet equity usually granted in Austrian sales. You should carefully consider tax advice on any proposed equity structure. Austrian shareholders may also be more likely to have minority protections and be protected from certain forms of dilution.
  • Vesting. In the US, vesting is often a mixture of time and performance (usually company performance rather than individual performance). In Austria, vesting tends to be time based (often four years with one-year cliff) and applies to the leaver situations, so everything is 100% vested on the private equity investor's exit (accelerated vesting).
  • Leavers – management incentive schemes. In the US, unvested incentive equity and vested incentive equity in a “bad leaver” situation (voluntary termination, cause or a violation of restrictive covenants) is usually forfeited. An executive who resigns voluntarily may sometimes be permitted to receive fair value for their vested equity. Good leavers (often death, disability or termination without cause) will often forfeit unvested awards but will be permitted to exercise their vested awards at fair value.

Czech Republic

  • Leavers – “rollover” equity. In the US, private equity investors usually have a call on any termination of employment on "rollover" equity (the equity participation purchased with the proceeds of sale). It may be possible to negotiate for “good leavers” (often death, disability or termination without cause) not to have their rollover equity subject to a call option or otherwise a call at fair value is common. A “bad leaver”, such as a voluntary resignation, would usually receive either fair market value or the lower of fair market value and the amount paid, depending on the private equity house concerned. Sometimes, good leavers in the US are given the right to require the company to purchase their rollover equity.
  • Options or profits interests (US) vs. sweet equity (CEE). US transactions favour management incentive equity participation usually through share options or profits interests, which can often be on standard form. This stands in contrast to the sweet equity usually granted in Czech sales. You should carefully consider tax advice on any proposed equity structure. Czech shareholders may also be more likely to have minority protections and be protected from certain forms of dilution.
  • Vesting. In the US, vesting is often a mixture of time and performance (usually company performance rather than individual performance). In the Czech Republic, vesting tends to be time based (often four years with one-year cliff) and applies to the leaver situations, so everything is 100% vested on the private equity investor's exit (accelerated vesting).
  • Leavers – management incentive schemes. In the US, unvested incentive equity and vested incentive equity in a “bad leaver” situation (voluntary termination, cause or a violation of restrictive covenants) is usually forfeited. An executive who resigns voluntarily may sometimes be permitted to receive fair value for their vested equity. Good leavers (often death, disability or termination without cause) will often forfeit unvested awards but will be permitted to exercise their vested awards at fair value.

Poland

  • Leavers – “rollover” equity. In the US, private equity investors usually have a call on any termination of employment on "rollover" equity (the equity participation purchased with the proceeds of sale). It may be possible to negotiate for “good leavers” (often death, disability or termination without cause) not to have their rollover equity subject to a call option or otherwise a call at fair value is common. A “bad leaver”, such as a voluntary resignation, would usually receive either fair market value or the lower of fair market value and the amount paid, depending on the private equity house concerned. Sometimes, good leavers in the US are given the right to require the company to purchase their rollover equity.
  • Options or profits interests (US) vs. equity (CEE). US transactions favour management incentive equity participation usually through share options or profits interests, which can often be on standard form. This stands in contrast to the sweet equity usually granted in Polish sales. You should carefully consider tax advice on any proposed equity structure. Polish shareholders may also be more likely to have minority protections and be protected from certain forms of dilution.
  • Vesting. In the US, vesting is often a mixture of time and performance (usually company performance rather than individual performance). In Poland, vesting tends to be time based (often four years with one-year cliff) and applies to the leaver situations, so everything is 100% vested on the private equity investor's exit (accelerated vesting).
  • Leavers – management incentive schemes. In the US, unvested incentive equity and vested incentive equity in a “bad leaver” situation (voluntary termination, cause or a violation of restrictive covenants) is usually forfeited. An executive who resigns voluntarily may sometimes be permitted to receive fair value for their vested equity. Good leavers (often death, disability or termination without cause) will often forfeit unvested awards but will be permitted to exercise their vested awards at fair value.

Hungary

  • Leavers – “rollover” equity. In the US, private equity investors usually have a call on any termination of employment on "rollover" equity (the equity participation purchased with the proceeds of sale). It may be possible to negotiate for “good leavers” (often death, disability or termination without cause) not to have their rollover equity subject to a call option or otherwise a call at fair value is common. A “bad leaver”, such as a voluntary resignation, would usually receive either fair market value or the lower of fair market value and the amount paid, depending on the private equity house concerned. Sometimes, good leavers in the US are given the right to require the company to purchase their rollover equity.
  • Options or profits interests (US) vs. sweet equity (CEE). US transactions favour management incentive equity participation usually through share options or profits interests, which can often be on standard form. This contrasts with sweet equity structures sometimes used in Hungarian transactions, which are typically bespoke and subject to specific contractual terms. Given the potential tax implications of any proposed equity arrangement, it is essential to seek specialised tax advice at an early stage. Additionally, Hungarian shareholders, including minority holders, may benefit from statutory protections, such as safeguards against unjustified dilution and other adverse corporate actions, which should be carefully considered when structuring the deal.
  • Vesting. In the US, vesting is often a mixture of time and performance (usually company performance rather than individual performance). In Hungary, vesting is not governed by a standardised legal framework and therefore requires express contractual inclusion in the relevant agreements. As a result, mechanisms such as leaver provisions, good/bad leaver distinctions, or accelerated vesting upon exit will only apply if they are clearly and specifically set out in the definitive documentation. Absent such provisions, Hungarian law does not imply any default vesting structure or treatment.
  • Leavers – management incentive schemes. In the US, unvested incentive equity and vested incentive equity in a “bad leaver” situation (voluntary termination, cause or a violation of restrictive covenants) is usually forfeited. An executive who resigns voluntarily may sometimes be permitted to receive fair value for their vested equity. Good leavers (often death, disability or termination without cause) will often forfeit unvested awards but will be permitted to exercise their vested awards at fair value.

Slovakia

  • Leavers – “rollover” equity. In the US, private equity investors usually have a call on any termination of employment on "rollover" equity (the equity participation purchased with the proceeds of sale). It may be possible to negotiate for “good leavers” (often death, disability or termination without cause) not to have their rollover equity subject to a call option or otherwise a call at fair value is common. A “bad leaver”, such as a voluntary resignation, would usually receive either fair market value or the lower of fair market value and the amount paid, depending on the private equity house concerned. Sometimes, good leavers in the US are given the right to require the company to purchase their rollover equity.
  • Options or profits interests (US) vs. equity (CEE). US transactions favour management incentive equity participation usually through share options or profits interests, which can often be on standard form. In Slovakia, management equity structures in private equity transactions tend to be more straightforward and are usually based on the direct acquisition of shares or business interests, rather than on options or profits interests that are common in the US.
  • Vesting. In the US, vesting is often a mixture of time and performance (usually company performance rather than individual performance). In Slovakia, vesting is most often time-based, with typical periods ranging from three to five years.
  • Leavers – management incentive schemes. In the US, unvested incentive equity and vested incentive equity in a “bad leaver” situation (voluntary termination, cause or a violation of restrictive covenants) is usually forfeited. An executive who resigns voluntarily may sometimes be permitted to receive fair value for their vested equity. Good leavers (often death, disability or termination without cause) will often forfeit unvested awards but will be permitted to exercise their vested awards at fair value.
Back to 'Understanding your buyers'