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What is a Private Company Tender Offer and How does it Work?

Published Date
Author Shareworks Marketing

When an employee receives equity as compensation, there is usually an expectation that this equity will translate into actual dollars down the line, also known as “liquidity”. However, as more companies are staying private longer, shareholders may have to wait many years for a traditional liquidity event like an IPO or acquisition. This leaves private company leaders with a conundrum: how can their equity compensation program continue to incentivize and reward employees? One answer is to help employees realize the value of at least some of their equity.

Private company tender offers allow companies to deliver partial or full liquidity to their shareholders in a controlled process. There are two key components to that definition:

  • Partial or Full Liquidity – Tender offers are not necessarily a “sell all or nothing” event (though they can be). Companies can choose to set restrictions on the sale of equity based on the shareholder type. For instance, a company might allow ex-employees and early investors to sell all of their equity to make room on the cap table for new shareholders; whereas they might restrict employees to only sell up to 20% of their holdings. Having this level of control can enable a company to ensure their tender offer is not undermining the incentives of their overall equity compensation plan.
  • Control – In a tender offer, the company can choose to control the mechanics of the transaction. This includes: who can participate (sellers and buyers), timing and frequency of the transaction, share price, information disclosure as well as other parameters. Utilizing an equity administration platform that can program these parameters directly into their tender offer can help to ensure a more streamlined workflow for all participants.

So how does the actual tender offer process work? Here’s a visual example of a typical tender offer conducted with Morgan Stanley at Work:

Pre-Launch

A company chooses the parameters of its program, including:

  • Shareholder eligibility
  • Maximum selling amounts
  • Timing
  • Available documents and disclosures

Testing & Feedback

The company and its legal team can review the transaction environment and shareholder experience on the Shareworks platform to ensure all necessary documentation is uploaded.

Shareholder Communication

To encourage shareholder participation, the company may choose to host a live demo or financial education session with a Morgan Stanley at Work representative to help their employees understand how the tender offer process works and may impact them financially.

Tender Offer is Live

Over a 20-business day period, shareholders can review the tender offer, sell their shares and digitally fill out all the necessary paperwork on the Shareworks platform.

In the background, the company’s plan administrators can track all participant activity in real-time.

Orders Filled, Documents Executed

Once the transaction window closes, the Shareworks platform distributes proceeds to sellers and delivers signed documents and a breakdown of proceeds, fees and holdings to the company.

Cap Table – Updated

The company’s cap table on the Shareworks platform is fully updated to reflect the results of the tender offer.

There are many moving parts within a tender offer, and the Shareworks platform can be configured to meet the specific goals a company has in mind. Ready to learn more? Download the Private Company Liquidity 101: A Guide to Running a Tender Offer.

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