medium · Private Equity
If an LBO is structured such that the management team receives 'Sweet Equity' in the form of options representing 10% of the company, and the 'Envy Ratio' is 2.0x, what does this imply about the management's expected return?
- Management's MoIC is expected to be twice as high as the sponsor's MoIC.
- Management is required to invest twice as much capital as the sponsor on a per-share basis.
- The sponsor's IRR is expected to be twice as high as the management team's IRR.
- Management's equity stake will double from 10% to 20% if performance targets are met.
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