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My (private) company is doing a tender offer. Should I participate?

Flow FP's block woman brings a stack of shares to the powers that be.

When you work at a private company, you might dream about your company going IPO one day, and all your company stock turning into riches. If you’re reading this post, I imagine you are now contending with one of the other ways to turn private-company stock into grocery money: a tender offer.

(The others I’d expect to see are a direct listing instead of an IPO, and a merger/acquisition by a larger, public company. I have particular fondness for the latter simply because it’s how my husband benefited from working at a smaller, private tech firm in Ye Olde early 2010s.)

What Is a Tender Offer? And Why Should You Care

What is a tender offer? I think Carta does a great job explaining (and way better than I did in my first attempts):

A tender offer is a structured, company-sponsored liquidity event that typically allows multiple sellers to tender their shares either to an investor or back to the company. In other words, it’s a potential way for you to sell some of your shares while your company is still private.

A few years ago, if you were at Uber, you went through a tender offer because Softbank (remember them?) wanted a piece of the Uber pie and injected roughly a bajillion dollars into the company by way of buying stock from the current stockholders, some of whom were my clients. That was, as it turns out, with hindsight, a lovely tender offer for the employees.

Why Should You Care?

If you work at a private company, you usually can’t do anything with your stock in that company (which you typically get from exercising your stock options) until the company goes public. It is, as one of my favorite clients calls it, “future fantasy money.”

However, tender offers are a liquidity event that can happen when your company is still private. You should care because it’s a rare opportunity, pre-IPO, for you to get actual cash money from stock in your company.

What Information Should You Look at in Your Company’s Tender Offer?

Two pieces of information are the most important (and obvious, I’m not revealing any great secrets here):

#1 How many shares are you permitted to tender (i.e., offer up for sale)?
In my experience, this really means two things:

  1. The company will probably limit you to a certain subset of the shares you own. Either “all shares that you owned prior to January 1, 2019” or “50% of the shares you currently own” or something like that.
  2. Tender offers can be “oversubscribed” so even if you tender 1000 shares, you might only be ultimately permitted to sell, say, 750. Both of Uber’s tender offers were oversubscribed. “Oversubscribed” means that so many people wanted to sell their Uber shares that there were more shares for sale than the investor wanted to buy. So, everyone’s offer got unilaterally and proportionally scaled back to meet the investor’s demand. I had a client who offered everything they were allowed to tender…and only ended up selling half of it. (And boy were we happy we tried to sell everything! Especially considering how Uber’s stock price has unfurled in the subsequent couple years.)

#2 How much will you receive for each share?
The tender offer documentation should make this very clear.

I’d be remiss if I didn’t say that you should really read as much of the tender offer as possible, because there’s always the possibility that something “interesting” is in it. But I recognize, on the basis of my experience with the Uber tender offers, that Oh My God That’s A Lot Of Pages Of Dense Legalese. So, uh, at least try your best to read all the highlights?

I’ve seen tender offers in a few different stock-plan administration systems now, from companies both middlin’ and gigantic in size. The presentation really does vary tremendously. I hope you got the good kind.

How Should You Think About Tender Offers?

If you’ve read enough posts on this blog about company stock, you might pick up on a theme that there is not A Single Right Answer.

So, let’s start with what’s at the root of all personal-finance decisions:

What is this money for? What do you really want in your life? Would this money help you achieve it? Or if you never saw this money ever, would you still get the life you want?

What Is the Money for?

Let me tell you a story of two clients who recently went through the same tender offer at the same company. And came up with the exact opposite plans, which made total sense for each of them.

First thing to know is that they’re remarkably similar in life and career stage.

One wants to buy a home now. She’s been talking about buying a home, and working towards it, since we started working together. It represents so much good to her. She was going to get there by saving out of salary eventually, but this is her opportunity to get that life she wants now.

She also has a few other passions that she can start honoring ASAP if she has this money now. So, this client is participating in the tender offer to the full extent possible (which is still, so’s you know, a small fraction of the shares she actually owns).

My other client, at the same company, has decided to not participate at all. I made sure to ask her six ways from Sunday about the risk of staying in the stock, how she’d feel if she didn’t participate and the company ended up being ruined by the pandemic and the stock became worthless…and she was okay with it.

This money is all gravy to her. She’s on track with just her regular savings to achieve the goals she has on a timeline she’s comfortable with. Getting the tender offer money now won’t meaningfully change her life. Getting a windfall later would. So, she’s willing to risk no money in pursuit of that windfall. Fair enough.

So, if you’re confronting a tender offer, you have to start by asking yourself what you would use the money for. Would it get you the life you want? Or would it not in fact change anything meaningfully for you?

How Comfortable Are You With Risking Getting Less or Nothing?

Selling your stock for cash the first chance you get is about the lowest-risk approach to company stock out there.

Keeping your stock in the hopes it’ll be even more valuable in the future is the higher risk approach.

If you truly knew how you felt about risk, that would help you could choose between those two approaches.

Alas, this is really hard (one might reasonably say impossible) to accurately gauge. Turns out, when the economy is booming or your company is booming or the stock market is booming, you’ve got really high risk tolerance! Why? Because you don’t actually believe that the economy/company/stock market can falter. It’s not true risk tolerance. It’s a belief that you won’t lose. (And by “you” I really mean “all of us, including financial advisors and investment managers and stock pickers and that bloviating know-it-all at work.”)

One reasonable way to get a handle on your attitude towards risk, and how you react to loss, is to think about a time in your life where you have experienced loss. Were you in tech during the O.G. Dot Com Bust of the early 2000s? How about in real estate or the stock market in 2007-2009? How did you feel, what did you do when everything lost half its value “overnight”? Your past behavior is a way better indicator of future behavior than your supposedly “rational” assessment of your risk tolerance right now.

Concentration Vs. Diversification

I must say, this discussion is one of my favorites when it comes to company stock. Because it acknowledges the reality that most of us financial planners don’t usually talk about:

While diversifying out of your company stock and into a low-cost, broadly diversified portfolio is your best chance of preserving your money, it eliminates your chance of Hitting It Big. If you want a chance to Hit It Big, then you need to stay concentrated. All my clients who have significant wealth ($Ms)? It’s because they owned a buttload of stock in a single company that did well enough (Uber and Airbnb, primarily).

So, if you want to stay concentrated in your company stock, it’s not necessarily a bad idea. You in fact kind of have to do that to have a chance of a big windfall. But you also have to understand that this (very) probably won’t happen, and you’re more likely to have less money in the end than you would have had you sold the stock and invested in the “low-cost, broadly diversified portfolio” that we financial planners are always nattering on about.

But this is why it circles back around to…what would you use the money for? If it can get you the life you want Right Now, or get you very close, then who cares about the possibility of hitting it big later?! You’ve already hit it big (in the most meaningful way) by having the life you want now.

If you’re staring a tender offer in the face, wondering whether or not you should participate in it, and if so, to what extent, I hope this post gives you a start in thinking how to make a decision that’s best aligned with you and your life. It really helps to talk it through with someone! So, grab a friend, if not a financial planner.

If you want to talk it through with me, reach out to me at  or schedule a free consultation.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

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