From the headline price to the actual carry: here is the looong cascade of deductions and LP hurdles that must be cleared. It's frankly a miracle that anyone can make a living from carried interest, hah.
Purchase price
- Banker fees
- Attorney fees
- LoC
- Auto loans
- Senior debt
- Other debt
- Indemnification escrow
- NWC bucket
- Tail insurance (D&O)
- R&W insurance
- Seller rep expenses
- Stock options
- Transaction bonuses
- Accrued PTO/vacation
- 280G tax gross-ups
- LP initial investment
- LP pref. return
- LP net proceeds
= Carried interest
And don’t forget taxes.
