At Datasite’s recent M&A Breakfast in Brussels, dealmakers from the region revealed that they expect most deals to come from the TMT, business and financial services, and consumer sectors in the coming months. 

M&A success through MIPs

Demonstrating recent M&A success in the business and financial services sector, Thomas Martens, Head of Legal at House of HR, and Thibault Moust, a Senior Associate at Freshfields, shared insight into Bain Capital’s 55% acquisition of House of HR in 2022, which included the use of Management Incentive Plans (MIPs).

MIPs are increasingly being used to help achieve successful outcomes for business growth and M&A. However, the strategy is not without complexity, especially in aligning management and shareholder interests while fostering a culture of accountability and transparency. With MIPs taking an ever-more important place in M&A negotiations (especially auctions), parties should allow sufficient time to get management on board early in the process.

MIP trends

In the Belgian market, MIPs seem to be offered to an increasingly large group of managers, often advised by separate legal counsel. Multiple PE exits/entries and (international) bolt-on acquisitions result in large groups of managers with increased bargaining power and requiring more (local law) tailoring. To a large extent, MIPs are also becoming self-managed and management is awarded a pre-defined portion of exit returns, thus making the MIP more predictable for the sponsor. Tracking shares have recently become more popular, but require clear agreements on profit allocation and governance. As a general rule, MIPs continue to be bespoke and no one size fits all.

Balance and flexibility

At the heart of House of HR's strategy was a deep commitment to its management team, recognizing them as pivotal assets in driving business success. With over 800 individuals within its capital structure, the challenge of fostering alignment and motivation, while still creating long-term value, is a complex and sensitive matter. Therefore, structuring the MIP involved careful negotiation and collaboration.

Determining the appropriate level of incentive that struck a balance between motivation and retention was crucial, as was rewarding performance rather than mere presence.

Flexibility also emerged as a cornerstone in designing the MIP, especially in the context of M&A. Anticipating future transactions and ensuring that the plan remained adaptable and future-proof was imperative. By incorporating mechanisms to accommodate growth and restructuring, House of HR demonstrated foresight and agility in navigating the dynamic business landscape.

Transparency, trust, and technology

Transparency and trust were key in the implementation process. Clear communication regarding the terms, obligations, and potential outcomes of the MIP fostered understanding and buy-in from management. This transparency not only cultivates a sense of ownership but also mitigates potential conflicts and uncertainties in the future.

Technology also plays an important role in managing such a comprehensive MIP. House of HR's investment in a digital portal helps ensure seamless communication and access to information for all stakeholders at all times. By leveraging the right technology, the organization ensures efficient administration and engagement across its diverse workforce.

However, the road to implementing a robust MIP is not without its challenges: managing the complexities of multiple jurisdictions, addressing tax implications, and navigating legal intricacies, to name a few. Moreover, the cost associated with such an extensive program necessitated a careful evaluation of its benefits against the investment.

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