Sweet equity

Sweet equity is the portion of an LBO management package subscribed by management at advantageous economic terms — typically through preference shares with deferred yield, warrants or similar instruments — allowing them to benefit from disproportionate economic leverage on future value creation. It is "sweet" because management can achieve a return multiple significantly above their proportional capital contribution if performance targets are met. Its structuring must respect fiscal and economic balance. See our publication on favourable employee incentive structures.

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Example: in a CHF 40.0 million LBO, management invests CHF 400,000 in sweet equity (1% of price) against 10% of economic capital. If the company is sold 5 years later at CHF 70.0 million (CHF 50.0 million equity value after debt repayment), management receives 10% × CHF 50.0 million = CHF 5.0 million — a 12.5x return on initial investment, reflecting the leverage effect of sweet equity versus an ordinary proportional shareholding.

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Hectelion structures and values sweet equity instruments in LBO management packages and fundraising transactions, balancing management attractiveness with investor protection.