IRELAND Law and Practice Contributed by: Enda Garvey, Brian McCloskey and Robert Maloney Derham, Matheson LLP
common. Typically, a financial sponsor who is taking a minority position in a listed company will seek certain rights and protections, the ability to appoint a direc - tor, a right to information about the company, rights of first refusal in respect of new equity or debt issuances, and board representation rights. It is important that a well-negotiated shareholders’ agreement is put in place to ensure a minority investor obtains adequate protection, but in a way that does not unduly stifle the development of the relevant business or breach the requirements of the Takeover Rules. A private equity minority investor will usually include specific covenants in a shareholders’ agreement (or investment agreement) to ensure it has adequate input on material business decisions made by the listed portfolio company. The main investment agreement will typically: • include veto rights over material business deci - sions; and • oblige the management team to submit regular financial and event-driven reporting to the private equity fund for the purpose of monitoring its invest - ment. 7.7 Irrevocable Commitments In larger transactions, it is common for irrevocable commitments to be sought from major shareholders to ensure that the terms of the offer are accepted and to bind the shareholders to selling their shares to the buyer. This commitment is usually given before the offer is made, as it offers greater certainty to the bid - der in relation to the chances of the offer being suc - cessful. An irrevocable commitment is binding on shareholders and will generally set out a timeframe for the share - holders to accept the offer. Such commitments (and letter of intent) are regulated by the Takeover Rules. 8. Management Incentives 8.1 Equity Incentivisation and Ownership Management incentivisation is a hallmark of Irish pri - vate equity transactions and is typically a key element
of a private equity firm’s three-to-five-year business plan. Management will generally subscribe for ordinary shares in the HoldCo representing between 5% and 15% of the overall share capital. Such equity is com - monly referred to as sweet equity. The sweet equity shares will typically have nominal value initially on completion of the buyout transaction and they will typ - ically be non-voting and subject to good-leaver and bad-leaver vesting provisions. Where there are a large number of managers in the sweet equity pool, a new nominee company or trust vehicle (“NomineeCo”) will often be set up by the private equity fund to hold the legal interest in the shares on behalf of management. 8.2 Management Participation As referenced in 8.1 Equity Incentivisation and Own- ership , where there is a larger pool of management investing in sweet equity, it is common for a manage - ment pooling vehicle or NomineeCo to be utilised. The NomineeCo will typically hold the beneficial interest in the non-voting shares on trust for the management team. Private equity funds will typically engage tax advisers to structure a NomineeCo in a tax-advanta - geous manner for the participants on exit. See 8.1 Equity Incentivisation and Ownership for a description of sweet equity terms. In addition, where management are also sellers and are reinvesting a portion of their sale proceeds, they will typically reinvest by way of a share-for-share exchange and receive ordinary shares in the same entity as the finan - cial sponsor holds their equity. Such reinvestment can often be a mix of ordinary equity and preferred equity, which will be on similar terms to shareholder debt from the financial sponsor. It is notable that, given the increasing number of US financial sponsors that are active in the Irish market, there is increasingly more of a US-style approach to management equity, with more prescribed key perfor - mance indicators required to be satisfied in order for the management sweet equity pot to become partici - pating on an exit.
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