Module VI· LBO Model MechanicsAdvanced
Question

How do you model management equity (MEP) and carried interest?

Answer

Management equity plans allocate a portion of equity upside to management, often with vesting, strike price, sweet equity, or ratchets. Model sponsor ownership and management ownership separately. At exit, allocate equity proceeds through the agreed waterfall. Carried interest is the sponsor GP's share of fund profits and is usually outside the deal-level company model unless fund economics are required.