Deal by Deal: A Private Equity Podcast Guiding Independent Sponsors on Carry Structures and Catch-Ups, with Grant Kornman
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Jan 14, 2025 Grant Kornman, Partner at Align Collaborate, dives into the complexities of tiered carry structures and catch-ups in private equity. He emphasizes aligning incentives and the importance of valuations in determining profit shares. Kornman discusses the negotiation dynamics between sponsors and capital partners, highlighting communication’s role in fostering successful collaborations. He also shares insights on investment strategies for independent sponsors, focusing on lower middle-market opportunities and the role of legal practices in building strong partnerships.
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Understanding Catch-Up Provisions
- Catch-up provisions ensure sponsors receive their designated profit share after specific return hurdles are met.
- This aligns incentives by rewarding sponsors for strong deal performance.
Valuation's Impact on Carry
- The valuation paid for a business significantly influences the carry structure.
- Higher valuations often lead to higher hurdles for sponsors.
Negotiating Economics
- Convey your deal expectations realistically to avoid signaling inexperience.
- Demonstrate a willingness to compromise and find common ground quickly.