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How to improve employee retention, attract talent and boost productivity with a tender offer

Illustration of employees discussing how to improve employee retention with a tender offer.

While equity ownership is known to motivate and incentivize employees, those benefits can quickly be undermined as demand for liquidity starts to build-up among shareholders. In response, today’s private companies often use tender offers to allow their employees to liquidate a portion of their equity through a controlled process.

Tender offers have become an important aspect of equity ownership, particularly as more companies look to remain private longer. New and tenured employees want to know that they won’t have to wait 10 years to reap the benefits of their equity, which helps to translate the value of their equity into real dollars. At the same time, tender offers provide companies with control and transparency over the entire process; they can choose who can participate, how much equity can be bought or sold, timing and share price.

Going Beyond Satisfying Liquidity Demands

Traditionally, a company might plan its first tender offer when demand for liquidity has reached a tipping point. Signs of this occurring include employees leaving the company, choosing not to exercise their vested options, or selling their stock on secondary exchanges or directly to unauthorized buyers. However, more companies are starting to choose to be proactive with their liquidity plans, recognizing that a well-timed tender offer can enhance productivity and boost the morale of their employees. Rewarding employees with liquidity helps signal to them that their contribution to the company’s success is recognized and valued. That reciprocal value goes a long way towards maintaining a workforce that is happy and motivated to grow alongside a company. 

Of course, CEOs may be concerned about a mass employee exodus after a liquidity event. However, that is rarely the case. Most companies report higher employee satisfaction rates and better morale after a liquidity event. At the same time, one of the key benefits of a tender offer is that it allows a company to place restrictions on the amount of equity that can be sold (typically up to 10% for current employees), which both lowers the risk of employee attrition while ensuring there is enough upside to keep them focused on the business’ long-term growth.

Improving Employee Retention with a Tender Offer

Employee tender offers can also be a powerful tool to recruit, attract and retain talent. While many venture-backed private companies offer equity, companies that regularly conduct tender offers can differentiate their equity compensation programs and attract a wider pool of talent. Millennials, in particular, are placing greater importance on equity compensation than previous generations. And, as tender offers become more common amongst Series C or greater companies, liquidity may become more of an expectation among younger talent.

Planning the Right Tender Offer for Your Employees

Of course, while tender offers provide a number of benefits to both companies and employees, there are a variety of factors to consider in order to yield the possible outcome for all parties.

Questions you may ask yourself during the planning process may include:

●      How do I maximize employee participation in the tender offer?

●      How do I minimize the cost and distraction to the employees?

●      How do I manage the long-term outcomes (like share dilution or impact on the 409A) and ensure an orderly and transparent process?

This is where Shareworks by Morgan Stanley comes in. As a leading facilitator of private company tender offers, we can help you plan for the above scenarios. Want to learn more about how you can bring the benefits of liquidity to your employees without excess cost or hassle? Contact us today.

Morgan Stanley at Work, Shareworks, Morgan Stanley Smith Barney LLC, and its affiliates and employees do not provide legal or tax advice. You should always consult with and rely on your own legal and/or tax advisors. Individuals should consult with their tax/legal advisors before making any tax/legal-related investment decisions. Morgan Stanley at Work and Shareworks services are provided by Morgan Stanley Smith Barney LLC, member SIPC, and its affiliates, all wholly owned subsidiaries of Morgan Stanley. CRC 3890815 02/2022