Why might a PE firm allot some of a company's new equity in an LBO to a management option pool, and how would this affect the model?
a) To incentivize management and align their interests with the success of the company, which could enhance performance and value creation. This could increase the dilution effect on existing equity holders, affecting ownership and potentially the returns in the model.
b) To reduce tax liabilities for both the company and management, thereby improving cash flows and overall financial performance. This would not have a significant impact on the model as it's primarily a tax optimization strategy.
c) To provide additional capital for operational expansion and strategic initiatives, fostering growth opportunities for the company. This would require adjusting the financial projections to reflect the increased capital expenditure and potential revenue streams.
d) To comply with regulatory requirements and corporate governance standards, ensuring transparency and accountability in the management of the company. This would not directly impact the financial model but could influence the overall governance structure of the company.