MALAYSIA Law and Practice Contributed by: Munir Abdul Aziz, Ee Von Teo and Addy Herg, Wong & Partners
8. Management Incentives 8.1 Equity Incentivisation and Ownership Generally, incentive plans for management are struc - tured on a long-term basis. However, short-term incentives based on annual results are also sometimes implemented. The level of equity ownership granted to a manage - ment team in a private equity transaction will vary based on the size of the portfolio company, the indus - try, the role of the management team, the private equity fund’s strategy, and negotiation between the parties. In general, the management team will typically receive a minority equity stake in the range of 5–10%. The stake might increase depending on the achieve - ment of specific financial or performance targets of In private equity transactions, management partici - pation can be structured using various mechanisms, including “sweet equity” and “institutional/equity strip”. Sweet Equity and Institutional Strip Sweet equity often involves the granting of a portion of equity ownership to key managers as a form of incentive or reward: the granting of equity ownership in the portfolio company is typically done in the form of shares, options or units of ownership at a favour - able price. This will align the interest of the individual key managers with the success and financial perfor - mance of the company. Institutional/equity strip involves the selling of a por - tion of the equity ownership in the portfolio company to external investors while still retaining control. This allows the key managers to participate in the equi - ty ownership alongside the private equity fund. The amount of equity ownership sold to external investors is typically a minority stake that would not affect the private equity fund’s control of the company. 8.3 Vesting/Leaver Provisions Leaver provisions relate to the treatment of the equity incentive plans granted to key executives or manage - ment personnel if they leave the company. the portfolio company over time. 8.2 Management Participation
Other deal security measures such as exclusivity arrangements are not uncommon and can be included subject to the TO Rules. Break fees are not commonly included, as they give rise to risks of providing finan - cial assistance in connection with the purchase of the target’s shares. 7.6 Acquiring Less Than 100% After a takeover offer has been made, the offeror can seek to compulsorily purchase the shares from the remaining minority shareholders of the target if the offeror acquires 90% of the nominal value of the shares in the target company. A minority sharehold - er can also require the offeror to acquire its shares under the terms of the takeover if the offer has been accepted by the holders of at least 90% in value of the shares in the target company, and the offer period has not expired. 7.7 Irrevocable Commitments Seeking arrangements with the existing shareholders/ principal shareholders by way of an irrevocable under - taking to sell the shares in the target is not uncommon in Malaysia. The offeror will seek irrevocable undertak - ings from principal shareholders to accept the offer or to vote in favour of accepting the offer. Such irrevocable undertakings are typically sought during negotiation and given prior to the launch/issue of the offer by the offeror. The nature or scope of the commitment in these undertakings varies, depending on the offer terms. Where the offer terms are favour - able, it is not uncommon for the offeror to not allow any “out” for the principal shareholder if a better offer is made. The offeror (and the principal shareholders) will need to be cautious of the arrangements among them with respect to the giving of irrevocable commitments and the terms contained therein, in view of the TO Rules and the restrictions (eg, to not give rise to a “favour - able deal”).
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