Management & employee participation
When private equity firms buy a company, the target is mainly financed with debt and cumulative preferred shares. The managers usually participate through common stocks. When the fixed rate return of the cumulative preferred shares is too low, a large portion of the 'upside' shifts to the ordinary shareholders. The tax authorities may qualify this as a wage benefit, which has unpleasant consequences for the income tax that needs to be paid. Our valuation team can help to determine and substantiate a fair return on fixed income capital towards the tax authorities.
It is possible that the employer gives employees an opportunity to participate in the company. This can take place through the purchase of shares, the acquisition of options or through a Stock Appreciation Rights (SAR) agreement. The PKF Valuation Services team provides tailor made solutions on valuation issues and the financing of employee participations.