Aspen Technology Case – Group 1
Problem Definition
Aspen Technology, Inc. has undergone rapid growth over the past thirteen years and the current business model has proven to be outdated. The young software company’s biggest challenge occurred in 1994 when they went public in a $31 million dollar initial public offering. The IPO effectively enabled the company to finance its increasing research and development spending, but it also increased the need to hedge risk associated with the growth of the multinational organization. AspenTech has become a public company with more risk adverse investors who want to invest in the core business of the firm, but do not want to assume its foreign exchange risk. Foreign exchange risk is a core risk for AspenTech, because much of its business is done outside of the United States. Its current risk management policy is ineffective because it does not currently account for its foreign expenses, which create an effective “natural hedging.” The ideal scenario would be to match foreign expenses to its respective sales, and completely hedge the difference, but AspenTech’s outdated hedging policy has failed to account for any of the expense exposure in Belgium, and has “over-hedged” exposure in Japan and the United Kingdom.
Description of Methodology
In this case we will identify the reasons Aspen Technology, Inc., has foreign exchange rate exposure, discuss where it comes from, quantify how much exposure they have, and provide recommendations to hedge against the exposure. This process will determine a specific course of action that will serve as a guideline and give the company a clear path forward as long as the variables do not change significantly.
Analysis
Aspen Technology had revenue of $57.5 million and net income of $5.4 million in 1995. The company employs over 400 people globally, with 36% of its employees located