What happens to stock options when startup is acquired?

If the acquiring company decides to give you company shares, either you will receive publicly traded shares, and your situation will mimic the IPO outcome, or if acquired by a private company, you will receive private shares and you will be back in the same situation as before: waiting for liquidity.

What happens when a stock is acquired?

When one company acquires another, the stock price of the acquiring company tends to dip temporarily, while the stock price of the target company tends to spike. The acquiring company’s share price drops because it often pays a premium for the target company, or incurs debt to finance the acquisition.

What happens to options when companies merge?

When an underlying security is converted into a right to receive a fixed amount of cash, options on that security will generally be adjusted to require the delivery upon exercise of a fixed amount of cash. Additionally, trading in the options will cease when the merger becomes effective.

What is an all-cash acquisition?

An all-cash deal is an exchange of an asset for cash without the use of any other monetary means, such as financing or exchange of stocks. In an acquisition, if the acquiring firm does not want the target firm to own stock or have voting rights, it can offer cash rather than an exchange of equity.

What is the purpose of an acquisition?

An acquisition is a great way for a company to achieve rapid growth over a short period of time. Companies choose to grow through M&A to improve market share, achieve synergies in their various operations, and to gain control of assets.

What happens to calls in a merger?

A call option affords holders the right to purchase the underlying security at a set price at any time before the expiration date. So, if the offer price is below the strike price of the call option, the option can easily lose the majority of its value.

What happens to options when a stock goes private?

What happens to stock if a company goes private? Unvested stock options and RSUs may receive accelerated vesting treatment and cashed out (if not underwater), cancelled, or continued. Shareholders may receive a cash payment in exchange for cancelling the shares.

Why do startups get acquired?

New products and market access are two of the most frequent reasons for startup acquisitions. A buyer can gain access to the startup’s customers and add a new product to its portfolio through the acquisition.

How can the acquiring company accelerate the vesting of equity options?

The acquiring company can also accelerate the vesting of options or awards, choosing to pay cash or shares, in exchange for the cancellation of outstanding grants. Acceleration of vesting may not be available uniformly across equity types or grants.

What happens to employee stock options when a company is acquired?

The acquiring company could cancel grants that wouldn’t have vested for a while, with or without compensation. The new company could also partially vest shares or continue the stock plan. This type of arrangement could apply universally to all employee stock offered in the incentive plan, or only to certain types.

What happens to unvested stock when a company acquires another company?

With unvested stock, since you haven’t officially “earned” the shares, the acquiring company could potentially cancel the outstanding unvested grants. Some common financial reasons include concerns about diluting existing shareholders or the company couldn’t raise enough cash through new debt issues to accelerate unvested grants.

How do stock options work for startups?

Types of startup stock options Stock options aren’t actual shares of stock—they’re the right to buy a set number of company shares at a fixed price, usually called a grant price, strike price, or exercise price. Because your purchase price stays the same, if the value of the stock goes up, you could make money on the difference.