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When Should a Private Company Think About Running a Tender Offer?

Tender offers often require a good amount of planning and coordination. Private companies may base the timing of their tender offer on a few factors:

Company Maturity

Based on historical tender offer data of companies who conducted a tender offer through Morgan Stanley at Work, private companies tend to conduct a tender offer when approaching their Series B or C financing or a $250 million+ valuation (although it is not uncommon for smaller companies to conduct them also). Companies typically have a few hundred shareholders with vested holdings that are eligible to participate.

Approaching a Funding Round

Some private companies may choose to couple their tender offer with an upcoming fundraise. In fact, more than half of the tender offers conducted with Morgan Stanley at Work in the first half of 2020 were offered by companies that completed a fundraise in the prior six months.1

Conducting a “follow-on” tender offer may provide a few benefits to the company, including streamlining information gathering and price negotiation for each transaction and allowing the company to use proceeds of the fundraise to cover a share buyback. Scheduling a secondary transaction after a primary round can also help minimize the variable impact of the transaction on the company’s next 409A valuation.

Other Market Conditions and Factors

Downturn markets, increased IPO activity, and unpredictable events like COVID-19 have all historically impacted private market liquidity. In addition, a company might perceive a liquidity need among a subset of their employees, such as perhaps long-tenured employees that don’t have the capital to exercise their expiring options.

Whatever the reason, tender offers can serve as a tool for attracting and retaining employees and promoting a strong culture of equity ownership.

Ready to learn more? Download the Private Company Liquidity 101: A Guide to Running a Tender Offer.

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