3 Private Company Liquidity Trends to Watch as You Plan Your Next Liquidity Event

Offering shareholder liquidity as a private company may no longer be a rare occurrence. In fact, for some companies, it is part of their long-term growth strategy. While the benefits of controlled private company liquidity events are well-documented, the tremendous growth of this market that we’ve seen--even throughout COVID-19—shows how companies are leveraging these programs in greater numbers. Between January 2021 and June 2021, the Shareworks liquidity team ran over $2.8B in tender offer transactions. 1

Whether you’re getting ready to plan a tender offer or considering one in the near-future, we thought it would be helpful to share some of the key trends we’re seeing across the dozens of programs happening on our platform. [If you have any questions about these trends or liquidity event strategies in general, please don’t hesitate to reach out.]

Unprecedented Buyside Demand is Driving Up Tender Offer Volume and Size

One of the reasons many private companies may be thinking now is the time to run a tender offer is due to the unprecedented amount of capital flooding the private market.

According to Pitchbook-NVCA data, “Investors deployed $69.0 billion into VC-backed companies in Q1, an increase of 92.6% compared to last year’s first quarter investments.” Fueling that capital influx: one of the strongest IPO markets in recent years and skyrocketing valuations for both early-stage and late-stage private companies. 2

This abundance of buyside demand is in turn potentially driving larger private company liquidity events. Companies may be using the opportunity to run more frequent and larger programs in order to bring on new investors while minimizing share dilution.

Lower-than-Usual Seller Participation Rates

The flip of side of that trend is that in many third-party tender offers, some companies that engage us (particularly later-stage companies) are experiencing lower participation rates among shareholders. This may be for a couple reasons.

Ryan Logue, Head of Liquidity for Global Private Markets provides some insight into the phenomena: “It is possible that shareholders are seeing soaring private market valuations and record-setting public company multiples and choosing not to sell in, so they can hold out for a future liquidity event when it may be more advantageous to sell. In a market that has been up and to the right for the past several years, shareholders appear to be more reticent to sell large amounts of stock before an IPO, even if they do end up taking some amount off the table.”

Whatever the reason, such companies are facing a dilemma: how can they ensure that a new investor is able to fully purchase the number of shares that they would like.

This can create a difficult dynamic for interested buyers and companies that are trying to centralize private company liquidity in a standardized way. “To solve for this, we’re seeing more companies partially relax their seller restrictions if and when it seems like a large buy order won’t be filled,” said Logue. “Usually this happens towards the beginning of the tender offer process–if the company suspects that they will not receive enough sales, they may allow certain shareholders to sell additional shares beyond the initial limit. Particularly for shareholders with large equity stakes (such as founders or early investors) this can sometimes be mutually beneficial.”

Shareworks helps to make this process easy through a feature that lets program administrators identify and message sellers that might benefit from an increase in the allowable sell limit.

Tender Offers Priced Closer to The Company’s Last Funding Round

Finally, a common question we often receive is around how companies are pricing their tender offer. While tender offer pricing relies on a number of factors, recently we have observed share prices close to, or at parity with, the preferred share price in the company’s most recent funding round.

According to Logue, “this can be partially explained by the trend of sellers participating at lower rates in company tender offers. Companies are choosing to price closer to parity with their last primary round to create greater participation and give sellers the confidence that the sales price is a fair one."

As we prepare for what is projected to be a very busy second half of 2021, Shareworks is here to help you plan and think through the mechanics of your next tender offer. Whether it’s deciding how to structure your program, recommended practices for communicating with your shareholders, or streamlining costs, we’re here to help! Contact us to learn more or request a demo of our platform.

 

1. Shareworks. “Our Growth in Private Company Liquidity Transactions.” Morgan Stanley at Work, 2021, https://discover.shareworks.com/ipo-and-liquidity-events/private-company-liquidity-transactions

2. Pitchbook, National Venture Capital Association, Silicon Valley Bank, Secfi. “Venture Monitor: Q1 2021.” April 13, 2021, p. 3, https://pitchbook.com/news/reports/q1-2021-pitchbook-nvca-venture-monitor.

About the Author

Angie Matturro

Angie Matturro is an Applications Marketing Lead at Shareworks by Morgan Stanley with years of dedicated experience taking complicated topics and breaking them down into easy to understand parts. She recently received her JD from Arizona State University, Sandra Day O’Connor School of Law, and is excited to help share the organization’s industry knowledge and expertise.

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