Private Equity Cash Out for Management Teams: How Much Is Possible?

When a healthcare business attracts private equity investment, one of the first questions management shareholders ask is how much they can cash out at completion. Understanding what is realistic is essential, since investors balance the desire for de-risking with the need to keep management motivated for future growth.

Why Private Equity Allows Cash Out

Private equity investors are generally comfortable with management team members taking some money off the table. After years of work and meaningful equity ownership, it makes sense for managers to crystallise part of their value.

However, investors are equally focused on alignment. Their returns depend on the business growing, and that growth is usually delivered by the management team. Investors want to see that once money is taken out, management remains fully committed to executing the next phase of the plan.

How Much Can Management Teams Cash Out in Private Equity Deals?

The amount management can cash out depends on the size of their shareholding and their role in the business.

As a broad rule of thumb, active management team members should not expect to cash out more than 50% of their equity value at completion. More often, the range is between 20% and 50%. The precise level will depend on the investor’s risk appetite, the scale of the transaction, and how important the individual is to future growth.

Passive shareholders, who are not integral to the business post-transaction, should be able to cash out a significantly larger proportion (if not all of their value). For those who remain key to operations, investors prefer to see meaningful rollover equity retained.

Why Rollover Equity Matters

Rollover equity, the portion of equity management continues to hold, is designed to align incentives. Investors want management to share in the upside of future growth, not just benefit from past performance. Retaining a stake keeps management invested financially and emotionally, ensuring everyone is focused on delivering long-term results.

Alongside this, a sweet equity pot is likely to be created for the management team, to further incentivise them to deliver future growth.

Key Takeaway

Private equity cash out for management teams is achievable, but it is always balanced against the need for ongoing commitment. Partial liquidity is expected and often significant, but retaining a meaningful stake is almost always required.

At Eclipse Corporate Finance, we specialise in advising healthcare management teams on how to structure private equity transactions that achieve the right balance between de-risking and future opportunity. If you are considering investment, we would be happy to talk through what this could look like in practice.