Aspen Technology, Inc

Aspen Technology, Inc

Executive Summary

AspenTech (AT) is a market leader in producing business simulation software primarily for companies in the chemical sector.   More than half of its revenues came from countries outside the U.S.   Receiving payments in the countries’ local currencies created a need to hedge interest rate exposure.   Japan, the United Kingdom, and Germany comprised the leading three countries that AT derived most of its overseas revenue.

AT’s customers oftentimes paid over a five year span. While AT could hedge the first two years with forwards, years three to five created uncertainty as to the predictability of future cash flows.   As Aspen increases its foreign sales and prices its products in local currency, its foreign currency exposure will also increase. Aspen’s risk management goal should be to eliminate this currency risk exposure so that it can concentrate on its core activity of business, which is to develop & sell software worldwide.

Going forward, AT should primarily seek to hedge its currency risk exposure as it will increase as the company grows.

• AT should hedge revenues between years three to five and manage revenues beyond that time period through operational changes.

• AT should use regularly updated currency co-variances to hedge against each other so that the overall volatility is not overstated.

• AT should use the actual cash flows rather than accounting cash flows to determine how to hedge its currency risk exposure.

• AT should also use options rather than forwards to hedge individual currencies by purchasing puts on currencies it is long and calls on currencies it is short.
















1.   Describe Aspen Technology's business strategy.   How does it create a financing need and exchange rate exposures.
AspenTech (AT) creates business simulation software to help firms with process manufacturing.   Its primary focus has historically been on the chemical sector where it controlled ~50% market...