Issues

Investors are looking to align their own interests with those of the company managers or investment funds in which they invest.

To do that, investors give or sell financial instruments to managers enabling them to earn an income according either to the capital gain they generated or to the company’s increase in value.

The set up of these profit-sharing schemes will determine the managers’ level of interest while its valuation will be necessary to assess both their level of financial involvement (when such instruments are either sold or handed over) and the basis on which they will be taxed.

Our means

• Analysing the Gain/loss profile of financial instruments according to the evolution of the underlying
• Analysing the options of these financial instruments
• Evaluating the value of these instruments using appropriate models: Black & Scholes, binomial or trinomial models, Monte Carlo
• Taking into account the impositions specific to the use of such financial instruments in LBO operations: absence of quotation, "recaps" modelling, setting up of financial leverage tools different to those of the targeted company or to those observed on listed companies
• Analysing the applicable volatility while taking into account the “non-listed” aspect of the underlying and of the financial structures…
• Analysing the consequences of the underlying illiquidity
• Analysing the consequences of both “vesting” or “good leaver/bad leaver” clauses.

Results

 Simulating the gain/loss profile of profit sharing instruments and determining the value of these instruments in a negotiation.
 Preparing an expert report on the value of financial instruments opposable to third parties

We helped them

 Apax, OFI Asset Management…