ventox35

Sales Leader

Politicker

Catalyst

Valued Contributor

ACQUISITION TALK: the dilemma

Been job shopping. Getting close to gathering some offers. Writing is on the wall, i'm out.

BUT

Caught wind of a potential buyer for the company. I have equity. I could make >6 figures if what i caught wind of is true.

Planning to keep job shopping-this acquisition sounds too good to be true.

What if it's not too good to be true? Should i, as a shareholder, find out how real this chatter is? Should I compile job offers? Please guide my feet along the proper path WR

🧠 Advice

📉 Equity

20 comments

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TennisandSales

Politicker

Head Of Sales

ok so you 100% need to figure out if this is real. but im super skeptical.

Also, how sure are you that you would make any money, never mind 6 figures?

what type of equity do you have?

how many shares out standing are there?

How many rounds of funding has the company gone through?

Is the company private? public? start up?

Also if you leave do you lose your shares?

Ive hear TO MANY stories of ppl making nothing.

also unless this acquisition is ABOUT to happen you could be waiting another 1+ for it to actually happen.....but if you really could get 100K...its worth to figure it out

JustGonnaSendIt

Politicker

Burn Towns, Get Money

Agreed with @TennisandSales , I have been thru this rodeo. Thankfully on the net-positive side :)

The critical thing to understand is your current shares. This will help you understand the opportunity cost of waiting VS leaving. That is... if the scuttlebutt is actually true :)

Do you own them outright? Are they RSU's or ISO's? Is the company already publicly traded or private? (I assume private).

Typically when a company is acquired, or there is external investment (essentially acquiring part of a company), there will be what's called a tender offer.

This tender offer will state an explicit price / share that the acquiring party plans to offer for the shares. It should also contain other details such as the timeline of the offer and any other stipulations (i.e. in an external funding scenario, to participate in the tender you may have to commit a minimum % of your holding or a minimum number of shares)

In the instance of an outright acquisition, one of two situations occur:

1 - Your shares are cashed out at the tender price. If they are RSU's you may have some vesting to be concerned about based on the timeline of the offer and your potential exit. If they are ISO's, you may have to be concerned about both vesting and the initial cash to actually exercise the option (particularly if you're leaving).

2 - The acquiring company will convert the shares of your current company into their shares, potentially with some ratio. This could mean you then have to execute a sale of those shares to realize the payout.

As mentioned above, there is always a consideration of the impacts of you leaving on the availability of the shares, which is driven by what kind of shares they are and the agreement that provided them to you.

Sunbunny31

Politicker

Sr Sales Executive 🐰

Thank you for writing this all out in detail! I worked for a company that was acquired and do not recall the specifics. In my defense, it was a long time ago. But - this is valuable info for anyone with equity or shares in a company.

ventox35

Politicker

Sales Leader

INSIGHTFUL. thanks!

They're ISOs. Vesting schedule is about 4 years.. however, in the event of ownership change, all remaining unvested will automatically vest prior to the close.

it's a pretty solid deal. i've had a lawyer review. my only real concerns:
1. is it real or not
2. what will cost per share be?
3. how much is uncle sam taking away from me if it happens

JustGonnaSendIt

Politicker

Burn Towns, Get Money

+1000 for having a lawyer review!

[CAUTION LONG RESPONSE; NOT TAX ADVICE]

Regarding vesting... it seems like you may leave a lot on the table if you leave prematurely, so I understand why this is something you're chewing on. I have been in a similar position and probably held on longer than I should have to let things vest. That's how they get you :) - But it was ultimately worth it in my case.

You should know your cost per share based on the ISO grant. The cut price if you will.

Then, the strike price (what you sell your shares for) is determined by the tender or the market in the case of an IPO.

Also: Good thought on taxes. I can give a US-centric perspective...

To think it thru, look at your ISO grants, understand the vesting schedule, and create two scenarios: One where you leave now / soon, one where you wait for ownership change. This gives you a baseline number of shares to work with.

If you have multiple grants, this could ladder out over time. It could also mean you have multiple cut prices to think about (what you'll have to pony up to buy the shares).

The actual transaction can be structured in a way, depending on the clearinghouse used, where you exercise and sell the option simultaneously, so you don't have to pony up cash and just take the net. Also: Some clearinghouses will withold a certain amount of taxes for you; some do not (in my case they did not)

If you were to leave, you'd have to exercise within a certain time window (pony up for shares). This will be spelled out in the ISO grant.

Regarding how much you walk away with, your on-paper gain is the net of the cut price (your cost per share) and the strike price (share price at time of sale). So, if you have a grant at $0.10 / share, and they sell for $1.00 / share, you net $.90 / share.

Regarding taxes, you should probably get a CPA involved (if you don't already use one) as capital gains can get a bit complex.

Essentially, if you have owned the shares for more than one year, you are only assessed for Long-Term Capital gains. This has a three-tier rate system that's determined by your income. There is also an additional Net Investment Income Tax that is levied if you have income above a certain threshold.

The net-maximum LT Cap Gains rate is like 23.5% or something like that (not a CPA here...)

However, since you don't own the shares right now, and would likely exercise less than a year before selling them, your net gain would actually be taxed as ordinary income. This means it falls into the standard progressive tax rate that your W2 would.

Depending on other things you have going on in your financial world, you could do things like tax-loss harvesting, charitable giving, or other things to impact your ordinary income. But these can get complicated to impact the tax bill on a six-figure windfall, so again get a pro to help.

In the case of getting hit at ordinary income rates, you could probably use the top marginal tax rate as a worst-case way to calculate your taxes.

I live in a state with no state income tax, so that's not even part of this. But if you have state income tax, there's that to consider as well. Another good reason to engage a pro.

Hope this helps. You should be able to get a rough idea of the opportunity cost of leaving VS waiting if you run the numbers.

ventox35

Politicker

Sales Leader

I've run the numbers :) the numbers are a no brainer. if the deal is likely-i stay and cash out. if the deal is unlikely-i leave. but i still have a portion of it vested, so i dont walk away completely empty handed.

cost per share was pretty measly a year ago..im conservatively guessing it's about 6x that price if what i'm hearing is accurate.

ThatNewAE

Big Shot

Account Executive - Mid enterprise

100% agreed with Tennis here!

ventox35

Politicker

Sales Leader

we raised a round of capital a year and a half ago, and they told me what the shares were worth then. the valuation they're talking about now is 10x what it was. it'd be worth 6 figures. but again, feels too good to be true.

TennisandSales

Politicker

Head Of Sales

i would highly recommend looking into everything @JustGonnaSendItmentioned. I think you need more information before you can get excite about the $100K pay out

JustGonnaSendIt

Politicker

Burn Towns, Get Money

It's all monopoly money unless there's a tender or IPO.

I suppose you could work with one of those sketchy companies that will front you cash for your private shares somehow... but I'd recommend against that.

Maximas

Tycoon

Senior Sales Executive

Totally agree!

Kosta_Konfucius

Politicker

Sales Rep

Never been in a situation but this can be a great negotiating tool to get a signing bonus, more base, or ote. So if you do jump ship, you can get a bigger piece.

Also say you find out the acquisition is real but timeline is not. Seems like you want to leave, how long are you willing stay for that bonus? It can potentially be awhile.

ventox35

Politicker

Sales Leader

you see my dilemma. feels like honest convo with the boss is best course of action

Kosta_Konfucius

Politicker

Sales Rep

True, but your manager can be overly optimistic and not give the most accurate timeline, since they will probably get a huge chunk of change.

Sunbunny31

Politicker

Sr Sales Executive 🐰

In addition, you want to be careful about how you ask - you don't want them to get wind of your plans to leave.

saaskicker

Celebrated Contributor

Enterprise AE

if you own those shares you will still get paid if it gets acquired - what type of equity do you hold?

CuriousFox

WR Officer

🦊

Do you know or have you asked?

ventox35

Politicker

Sales Leader

incentive stocks. basically, get acquired then all shares vest. the board sets the price per share. i buy a boat.

saaskicker

Celebrated Contributor

Enterprise AE

ahhhh yeah. i would not bank on incentive-based stock / if the board sets the price etc etc. your investors get paid first, then your founders, then your board, then your bosses boss, then your boss. that's a lot of boats before your boat.

they are using this as motivation, it's working. but i would not bank on this. you don't own anything except a promise.

GDO

Politicker

BDM

you as a sharehold have a right to know if it is concrete and real.

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