Hi working on an LBO would appreciate advice within next 24 hours
During the LBO the company does a dividend recap resulting in a dividends payment of $100m
The sponsor initially invested $400m into the company and gave management 10% options at exit
should the 10% options be based on 1) the $400m initial equity invested or 2) $300m? (the $400m-$100m dividends)
I was told it should be 2) but I don't understand why? Apparently I should subtract the $100m dividends from the equity value and calculate what the 10% options in shares would be from that? I.e cash received from exercising the options would be 10%*(400-100) instead of 10% * 400 ?