M&A and Your Stock

As a tech employee paid in stock, it's important to understand what happens to your equity when your company is acquired. The acquisition process can be confusing and the terms can vary depending on the type of equity you received, the length of time you've been at the company, and the terms of the deal your company agreed to with the buyer.

Here's a breakdown of what you can expect and how to navigate the acquisition process:

Factors that Impact Your Stock

When your company is acquired, there are a variety of factors that can impact your equity, including terms listed in your individual grant or security, and terms negotiated as part of the acquisition. These can include:

Exercised shares: Your exercised shares are typically paid out in cash or converted into common shares of the acquiring company. You may also have the opportunity to exercise shares during or shortly after the deal closes.

Vested options: If a deal includes a clause that cashes out vested options net of the strike price, your gain may be small if the acquisition price is close to the exercise price in your grant. Vested options may also be accelerated, which speeds up your vesting schedule.

Unvested options: Depending on the negotiations, your unvested options may be converted to cash, issued a new grant with a new schedule, or canceled.

Vesting: You may have to reach certain milestones, such as time spent at the new company, before the acquirer gives you cash or stock for your prior shares. This helps the acquiring company retain talent and align employees with its goals.

Escrow: A portion of the cash or stock you receive may be held temporarily in a separate escrow account once the deal closes. This is meant to cover any outstanding issues, like taxes or lawsuits, post-closing.

Holdback: This means part of your vested value is temporarily retained by the acquiring company, usually for founders or executives. Holdbacks often have their own vesting schedules and specific terms that incentivize the founder to stay on at the new company for a certain amount of time.

Navigating different scenarios

Knowing how the deal is structured, the terms of your equity, and the specifics of the acquisition can help you make informed decisions about your financial future.

In a stock-for-stock merger, you will likely receive shares in the acquiring company in exchange for your shares in the target company. The value of your new shares will depend on the exchange ratio, which is determined by the relative value of the two companies at the time of the merger.

In a cash merger, you will receive cash in exchange for your shares. This is usually the case when the acquiring company has a much higher market capitalization than the target company. The cash price will be based on the company's latest valuation and the terms of the deal.

In an asset merger, you will receive assets in exchange for your shares. This is usually the case when the acquiring company is interested in specific assets of the target company, such as a product line or real estate. The value of the assets will depend on the terms of the deal and the value of the assets at the time of the merger.

It's also important to note that mergers and acquisitions can be complex and take time to close. During this period, the value of your shares may fluctuate based on market conditions and the status of the deal. It's important to consult with a financial advisor to understand the potential impact on your equity and plan accordingly.

Overall, as a tech employee paid in stock, it's important to be aware of the potential impact of a merger or acquisition on your equity. By understanding the terms of your grant, the specifics of the deal, and the different scenarios that may occur, you can make informed decisions about your financial future. Whether it's cashing out your exercised shares, negotiating for a better vesting schedule, or holding onto your shares for the long term, knowing your options can help you make the best decision for your financial well-being.