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Case Study

Keeping cool: Running the numbers on the Kooltex incentive package (B)

By Benoit F. Leleux and Jonathan Lachowitz

11 pages

April 2009

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Reference: IMD-1-0270

In order to appear credible before the Swiss Tax authorities, the Kooltex management team hired Diamond Financial Consulting, a local “fiduciaire” with a solid reputation, to help them value the management incentive package; one that they had received during the firm’s secondary buyout in March 2007. The management incentive was designed to give the Kooltex team the potential to share significantly in the upside of their new owner’s investment but only if they doubled the CHF 64 million investment and achieved a minimum of 25% internal rate of return on investment (IRR) per year. Using the latest Monte Carlo simulation techniques, Diamond Financial Consulting valued the management option at approximately CHF 185,000. Their full original report is presented.

Learning Objective

Using Monte Carlo simulation to value complex, non-traditional options, such as management stock option plans in the context of buyouts.

Keywords

Valuation, Option Pricing, Monte Carlo Simulations, Finance

Settings

Switzerland
2007

Type

Generalized Experience

Available Languages

English

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