Hey all,
I just wrapped up a case-study at a mega-fund and was stumbling a bit across one question. I really don't want to overcomplicate this but hear me out:
- Assume management participates in 10.0% of the equity value over 1.0x sponsor MOIC (i.e. cost basis of original sponsor investment)
The nuance here is that mgmt. only participates above 1x sponsor MOIC
The way how I view mgmt. options normally
Lets make the example:
- Initial equity value is ~600mn (sponsor equity) thus ~$6 per share (assuming 100 shares)
- Mgmt. gets 10% in options, thus new share count ~111 shares (11 mgmt, 100 sponsor) to reflect the new structure of 90% / 10%
- Mgmt. needs to pay proceeds/strike to participate in pool, i.e. $6*11mn options = 66$mn;
- Total equity is now at ~1,900mn add on top the mgmt proceeds then we distribute roughly 1966mn (1900 + 66) 90% to sponsors and 10% to mgmt
The way how I view mgmt. options with this slight "restriction" (>1 MOIC)
- I would have rune exact the same logic then above but then make a distribution waterfall, i.e., Sponsor gets equity back (600) then you have the remaining pool of ~1,300mn equity to which mgmt is entitled 10% but only after paying strike price (~66mn contribution) and then I split 1,300 + 66mn again to sponsor/mgmt.
Does this make sense to you guys?
Repellat ab enim distinctio quaerat pariatur quisquam fuga aut. Ut enim temporibus at ex consequatur eos. Voluptatum minima nulla fuga possimus voluptas doloremque distinctio.
Assumenda incidunt eos illum ad. Nobis voluptas odit expedita. Reiciendis qui voluptatem id harum aut dicta qui.
Voluptatem et fugit mollitia ut assumenda assumenda assumenda. Aut et voluptas beatae nihil eos in tempore. Quidem facilis cupiditate deleniti tempore illo consequatur aut. At ut iure provident eligendi similique et praesentium.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...