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Practitioner's Complete Guide to M&As: An All-Inclusive Reference, with Website by David T. Emott

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Topic 88

EVAquity: Align Shareholder and Management Interests

Topic 88 explores the use of a form of tax-effecient shadow equity, EVAquity, to align the interests of the equity investor and management of an acquired (or otherwise) business.

The reader is encouraged to take the time to read the text in conjunction with the referenced Appendices to gain the appropriate level of understanding of the subject matter discussed in the narrative. Appendices are either presented at the end of this and each remaining Topic or are available for review and download on this book's companion Web site (see the About the Web Site page for login information).

EVAQUITY INCENTIVE PLAN OVERVIEW

  • You have closed the deal and want to be sure that management interests are closely aligned with the equity investor's goal of creating value.
  • Align those long-term shareholder value creation goals with a management incentive plan, “EVAquity,” that provides a tax-efficient equity equivalent to management, without the issues associated with issuing transfer-restricted or marketable common share equity.
  • The EVAquity incentive plan captures the effect of the value drivers’ growth (g), return on capital (r) (net operating profit after tax [NOPAT]/operating capital), and C* and rewards management to effectively manage the drivers and allows management to share in the growth in value of the business as measured by growth in the composite result of the drivers, EVATM (EVA is a trademark of Stern Stewart).
  • EVA is ...

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