Stock Options Scenario-PE

Management teams are often compensated with performance-based stock options to encourage 110% effort while owned by the PE sponsors. Even private companies can award these contracts. 

However, what happens to the sponsor's equity? How badly can they be diluted?

The Treasury Stock Method can be overwhelming at first, as always take a second to really thing about what is trying to be accomplished here. We are looking to see what type of contract we can award management to keep them motivated, while avoiding excess dilution to our ownership.   

Goal: complete the template in under 45 minutes, model from a blank sheet in under 1 hour. Try to summarize in 3 sentences or less why this would or would not be a good investment purely based on the output of the model. 

Steps:

1. Download the prompt and use the attached template to assist your modeling 
2. Take a minute to look through the different sections of the model to understand where inputs may be flowing and where outputs are coming from (detailed returns analysis subsection)
3. Work the model top-down filling in the assumptions section, then the sources & uses, etc. You should only have to fill out the cells colored light gray 
4. After a first try, open up the answer file and really study the underlying formulas and the levers to impact returns 
5. Attempt the template again. After completing the template with no assistance from the answer file, open up a blank excel and try to build a model from scratch to answer the prompt

The_Pulse_LBO_Model_Stock_Option_Prompt.docx

The_Pulse_LBO_Model_Stock_Options.xlsx

The_Pulse_LBO_Model_Stock_Options_Answer.xlsx

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