When the private-equity firm Charterhouse acquired Saga, the holiday and financial-services firm for the overfifties, back in 2004 the buyout was structured to give management and staff a significant interest in the company’s future.

Chief executive Andrew Goodsell bought an 8% stake in the business, at No 70 in this year’s Top Track 100, while the finance and marketing directors each took 4%. More than nine out of ten workers also seized the chance to buy 20 shares in the company for a total of £20.

Saga’s merger with the roadside recovery provider AA three years later provided an opportunity to release some money to its backers. Not only did Charterhouse and the senior management take a dividend, staff discovered that their £1 shares were now worth £525.

Since then, most staff have reinvested a portion of their profits into the company, which had sales of £688m in 2007. Charterhouse holds a 40% stake. Permira and CVC, which were co-owners of the AA, each have a 20% stake. Management and staff own the rest. “The structure means that people are committed to the business and have a real interest in improving its performance,” said Saga.

Management and employees own a substantial minority stake in more than 50 companies in this year’s Top Track 100. Like Saga, most are backed by private-equity funds that understand the value of aligning the interests of investors, managers and staff by giving workers the opportunity to share in future profits. For example, the management at food distributor Brakes (No 23) owns 20% of the company after a secondary buyout by Bain Capital in 2007. At Gala Coral (No 26) the management hold 19%, with the rest split equally between Candover, Cinven and Permira.

Over the past decade, management and employee share ownership has become a standard way of creating value in the private-equity industry. So successful is this strategy that several listed companies are thought to be examining how they can transfer it to the quoted sector.

Law firms like Freshfields Bruckhaus Deringer have played a key role in creating this new entrepreneurial share-owning class. Not only do we help put in place the senior debt and mezzanine finance that buyouts typically require, we also advise on how to structure the shareholder loans, preference shares and ordinary shares that enable management to invest in the companies they lead. We make sure the structure reflects the economic deal agreed between management and the private-equity investors, and fits the Inland Revenue’s rules.

Clearly, private-equity structures are tailored to suit the circumstances of all the parties in the transaction. But they must also take account of an evolving industry and a changing economic climate. Ten years ago, for example, when average deal sizes were much smaller than they are today, it seemed reasonable to ask the management to buy a 10% stake in the equity of the business. Today, when deals involving £1 billion of equity are commonplace, a similar investment would require £100m. As a result, shareholder loans have become a widespread feature of private-equity deals.

As Saga demonstrates, share ownership can prove rewarding for managers and employees who work in partnership with a private-equity backer, and they can buy a meaningful stake for an affordable price.

A swathe of highly profitable exits in recent years have allowed staff like those at Saga to realise at least a portion of their gains at a considerable profit. But what will be the consequences for management shareholders as the debt markets tighten and the prospects for a quick and lucrative exit recede? After all, other financial backers must be paid before benefits start accruing to equity stakeholders. This will put the value of management equity under pressure. As private-equity firms cut the amount of leverage in their deals, we expect to see management taking bigger stakes and larger risks in deals. We also expect more schemes that reward staff according to the performance of their division rather than the results of the business as a whole.

Tighter lending markets are encouraging private-equity companies to explore new ways of creating value quickly. Some are choosing to buy cheaply. For example, the American private-equity giant Texas Pacific Group recently snapped up 23% of the Bradford & Bingley bank at a discount to its already-battered share price.

Other investors are opting to back very fast-growing companies such as Towergate Partnership, the insurance broking and underwriting group that has appeared in The Sunday Times Profit Track 100 league table three times. The American hedge fund Och-Ziff recently took a 10% stake in this business, which improved profits by 57% a year from £11.9m in 2003 to £45.6m in 2006, thanks to 139 acquisitions in its first decade of trading.

Management and employee share ownership has become an established part of the private-equity toolkit. What’s more, as the European industry matures, these structures will spread across the continent. For Top Track 100 companies that are pondering a private-equity deal, the new generation of structured financing could be just what is required.

— Christopher Bown, co-head of Freshfields Bruckhaus Deringer’s international private-equity group, was talking to Catherine Wheatley

Explore Top Track 100

• Top Track 100 table