DealLawyers.com Blog

With the IPO market’s extended slump, private market liquidity alternatives have continued to grow in importance. Gunderson Dettmer recently published a report on market trends in one of the most prominent of those liquidity alternatives, private company tender offers. The report was based on data garnered from over 250 private tenders in which the firm was involved. Topics addressed include company valuation, deal size, pricing, the nature of the buyers, the securities invovled, and the sellers eligible to participate in the offer.

Eligible sellers in a tender offer might include founders, insiders, current service providers, former service providers, and investors. This excerpt discusses how frequently each of these groups was eligible to participate in a tender offer:

The data on eligible sellers shows the percentage of deals over the past 18 months in which each of the named groups was allowed to participate and sell shares. The group most often included is current service providers, who were eligible to sell shares in 87% of the deals. Note however that, for each of the named groups, companies will often limit participation to only a defined portion of the group.

For example, investors could be limited to holders of a certain series of preferred stock, or former service providers could be limited to individuals whose employment was terminated in a reduction in force. For service providers, companies often limit participation based on years of employment. In 39% of deals in the past 18 months, current and/ or former service providers had to meet a years-of-service requirement (typically between 1 and 3 years) to be eligible to participate in the offer.

The figure showing that founders were eligible to participate in 78% of deals reflects both deals in which founders could tender shares in the tender offer, and deals in which the parties negotiated to allow insiders to sell shares prior to or following the tender offer. Founders sold shares in these “outside” transactions in 27% of tender offer deals over the past 18 months, while founders were eligible to participate in the defined tender offers in 51% of the deals.

The report also addressed the percentage of their holdings that each group was allowed to sell in the tender offers in which they were eligible to participate. It concluded that founders, insiders and current service providers were limited to tendering 20% of their holdings, former service providers were limited to tendering 28% of their holdings, and investors were not subject to a limit on tenders.

– John Jenkins