A tender offer is a transaction between a group of selling shareholders and a buyer or group of buyers. In some cases, the company itself will act as the buyer (this is known as a “share buyback” or “company buyback”). However, there may be other parties involved in a tender offer other than just the buyer and the seller. For example, a private company might involve their outside counsel in the tender offer process to oversee the review of important disclosures, sharing of sensitive company information, and the collection of documents and signatures from shareholders.
Here is a quick breakdown of the parties that may be involved in a private company tender offer, and their respective roles:
Tender offers are company-controlled liquidity events, which means the company plays a central role throughout the entire tender offer process. This includes choosing the parameters of the transaction, such as: who can participate, how much equity can be sold, pricing strategy and transaction timeline. A company may designate their equity plan administrator and one or two members of their HR team to assist with coordinating the tender offer and communicating with shareholders.
Once the transaction mechanics are defined and eligible sellers invited to participate in the tender offer, companies can leverage an equity administration platform to offload much of the transaction administration. As part of this service, companies may be provided with a team of specialists who can help ensure all participant accounts are activated, offer education sessions for shareholders, test the program configurations and providing ongoing transaction support.
The platform itself can guide shareholders through the offer process, sending out customized communications requested by the company. It then may collect all necessary information and signatures to fill the sell orders and distribute the proceeds.
A company may choose to act as the buyer, in which case it will need to decide whether to fund the tender offer using excess balance sheet cash or the proceeds from a recent funding round. If a tender offer is not structured as a buyback, the company approves a buyer or group of buyers to fund the purchase. In some cases, the tender offer may occur immediately following a funding round. In this case, the buyer is the same for both transactions.
The buyer’s role in a tender offer is quite straightforward: the buyer will review the offer, indicate how many shares they intend to purchase, wait for the order to be filled and sign any necessary documentation. For tender offers conducted on an equity administration platform, buy orders may be filled automatically and buyers notified when their order is complete. The resulting set of documents indicating transfer of equity ownership may then be sent directly to the buyer(s).
Eligible sellers in a tender offer are the shareholders with (1) fully-vested equity holdings that (2) have been permissioned to sell by the company. These shareholders may be current employees, former employees, venture investors, or the founders of the company. Participation in a tender offer is not mandatory; in fact, participation rates vary across companies.
The company may also set parameters to restrict shareholders to selling certain quantities of their total vested holdings. For example, companies may limit non-executive employees to selling 10-25% of their vested options. This tactic is often used to ensure employees still maintain a meaningful stake in the company and are aligned with its long-term success. Former employees, on the other hand, may be given the option of selling up to 50% of their holdings or even required to sell "all or nothing", depending on whether a company is looking to make space in their cap table.
Once the seller chooses to participate in a tender offer, their role is to review the offer-to-purchase and decide how much of their equity to sell. From there, the participating sellers can simply follow the guided workflow through the sell order process. They may also have the option to reach out to a dedicated transaction support team for any assistance.
Private companies may choose to involve legal counsel in the initial planning of the tender offer as well as to support with the administration. Within equity administration platforms, legal counsel may be able to offload some of the more manual work – like collecting and distributing documents and disclosures – and instead take more of an overseer role like monitoring transaction activity and shareholder participation on behalf of the company.
Ready to learn more? Download the Private Company Liquidity 101: A Guide to Running a Tender Offer.