Management Option Pool vs. Management Carry in LBO Model
Say you have:
- 10% management option pool (assuming strike price = entry equity value)
- 10% management carry pool (assuming no performance threshold and participation in all gains)
These would be modeled the same in a simple LBO, correct? As in, per the below Breaking Into Wall St template, you are essentially taking 10% of any exit equity value over entry equity value and giving that to management and subtracting it from sponsor / rollover equity, with the option in both scenarios to calculate with circularity or not.
I think this is right ignoring nuances that may be found in a more complicated model? And essentially same for management promote?
Based on the most helpful WSO content, management option pools and management carry pools in an LBO model are conceptually different, but in a simplified LBO model, they can indeed be modeled similarly under the assumptions you've outlined.
Key Points:
Management Option Pool:
Management Carry Pool:
Modeling Similarities:
Management Promote:
Simplified Assumption:
Under the assumptions provided (strike price = entry equity value for options, no performance thresholds for carry, and ignoring nuances), the treatment of these pools in a basic LBO model would indeed be similar. However, in more complex models, the differences in mechanics (e.g., strike price for options, performance thresholds for carry/promote) would need to be accounted for.
Sources: Management Option Pools in LBO Models, Management Option Pool LBO Question
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