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Acquisition: What Happens After a Shift of Power? Part 4

Acquisition: What Happens After a Shift of Power? Part 4

Will you ever see a profit in an acquisition?

In our last blog post, we discussed vested and unvested options in relation to an impending acquisition. Today, in part four of our series, we will determine how terms of an acquisition deal, valuation and option conversion can affect your stock options during a shift of power.

Acquisition Terms:

When you are granted a plan for your stock options, be sure to review any and all clauses concerning potential shifts in power. This includes a merger or acquisition.  Your plan should always map out the conditions of any acquisition in relation to your stock options. However, the future of those options and what you may receive from an acquiring  company will be directly dependent upon the terms of the merger or acquisition deal.  

The factors that could affect your stock options in an acquisition are plentiful and vary from case to case, but there are some general occurrences that are seen quite often. According to MyStockOptions.com, they are:

  • The tax consequences to the acquirer and seller
  • The terms of the target’s stock option plan and the agreement the acquiring company strikes with the target company
  • The financial accounting for the transaction
  • The willingness of the acquirer to preserve equity participation by employees of the target company
  • The value of your stock in the target compared to that of the acquirer
  • The company’s concern about tax consequences to the option holders

These occurrences may be completely out of your control, but it is still essential to have at least a basic understanding of what could potentially affect your stock options during a shift of power.

Valuation:

Amidst a merger or acquisition, the valuation of your organization will be a determining factor of your own loss or gain in the shift of power. The value is determined according to premium or trading price of a private or publically traded company.

  • Private: The value of privately traded companies can vary depending upon the perceived value of the organization according to input of financial professionals such as bankers, investment advisors etc. The price of sale is negotiable and decided upon based on the perceived value.
  • Public: MyStockOptions.com reports that,public-company transactions are almost always structured as stock and not asset acquisitions, unless it’s a divestiture of part of the company.” What this means is that in these transactions, deal price can vary if a fluctuation or a fall in public market value occurs between the date in which the deal is initiated and when it is finalized and closed.

Valuation and deal terms are two of many factors to be cognizant of while anticipating a merger or acquisition. In our next post, we will address option conversions and tax treatments. Be sure to check back for more useful information for understanding the future of your stock options.

Stock Connections specializes in working with San Francisco Bay Area companies that are involved in mergers & acquisitions, are raising capital, or creating stock option or other equity plans. We help start-up, private and public firms become – and remain – SEC-compliant. Stock Connections’ services are designed to help both start-ups and established firms comply with SEC and other regulations in their equity compensation programs. If you or anyone you know is looking to get involved with any of the above, we encourage you to contact us today.

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