My company got bought-out in February, and it caught me by complete surprise. The sort of surprise where it wasn't even anticipated so I had no contingency plans on the back-burner.
I was under the completely mistaken impression that we worker-bees would catch wind of something like that before it's reported to the world. But no. Due to SEC rules regarding insider-trading, everyone in the company will get told 5 minutes before the press-release drops embargo (and that drop will happen outside of trading hours). The savvy insider may notice some pre-acquisition activities; a coworker thought he recognized the beginning stages of another funding round, for instance. For a publicly traded company, the biggest clue is an unexpected insider-trading blackout.
Here are a few of my biggest anxieties, answered.
Will I get any money from this buy-out?
That depends 100% on the details in your Stock Options plan. If you are already a share-holder, you will get some of the money. That always happens.
Thing is, many people don't go into the funny money vaporware of private company options unless an IPO is in the offing. Why would you? They're not liquid, and have tax-consequences. You do as a hedge against an acquisition. This mechanism is why twitter threads like this happen:
Company X got bought-out for $750 million, and all I got was fifty bucks.
That was because the person posting it bought 10 shares of stock on a lark, just to have an in. Meanwhile their friend in the other desk came away with a couple hundred thousand; all because that friend put $10K into funny-money vaporware stocks and got lucky.
That's the only way to guarantee you get money.
There is another, but it depends on the details in your stock plan. Read it. If there is text in it like:
In the event of [various things, including a buy-out], all vested options will immediately be owned by the recipient.
you'll get more. This is an acceleration clause, and is one way that companies can either make them less of a takeover target (the preferred investors will get less money in a buy-out, so the price has to be higher for them to get the return they need), or set things up to reward their workers. If you have a clause like this in your options plan, you don't need to buy stock as a hedge, since you'll get it in a buy-out.
Whether or not tax is withheld from this pile of cash is up to the parties involved.
Should I panic-buy all of my vested options?
This has tax consequences either way due to how stock-options are taxed. If your options are $0.50/share, and the buy-out price is $15.00/share, your capital gain is $14.50/share. You'll potentially owe taxes on that difference. I say potentially because this is why you need a tax professional to figure it out. You'll still get a $30 for each dollar spent, but the IRS may clear their throats at you if you handle it wrong.
If you have an acceleration clause, definitely do not. You'll get the money anyway, and it'll make your taxes easier (no capital gain to figure out) to just wait for the cash to show up. It might be withheld at your W2 rate, or it might be held at the Supplimental Withholding rate (22% for most folks).
If you do not have an acceleration clause, consider it. But also consider your tax-year and when they tell you to expect to see the money. If you panic buy the day before Christmas and they tell you that the money will show up in May you'll potentially owe cap-gain on all those shares before you have the money in hand from the buy-out. This could be a bankrupting event.
What happens to my job?
That's out of your hands. You'll get an offer for a new one, or not. Since there is usually time between announcement of the buy-out and the closing of the deal, you will have some time to get a temperature reading about whether or not your job might be on the chopping-block. You're in luck, though. Recruiters know that people flee companies getting bought out, so there will be lots of people looking for you.
A lot will depend on how your current company is doing. If this buy-out is a relief, expect some head-count reductions. If this buy-out is a surprise of synergy, you're probably safe.
What happens in a year?
This depends on how hostile the buy-out is. For the tech marketplace, a friendly buy-out will see roughly the following changes.
- IT and HR will be among the first merged into the parent company.
- Sales is likely next, because the smaller company is getting a much larger salesforce out of this deal, and that's how the parent company supercharges the smaller company's product offerings.
- Design and Marketing may or may not get merged or eliminated, it depends a lot on whether or not the parent company is allowing the merged organization to keep their brand identities.
- Engineering will be largely untouched, at least for the first year. Too many other parts of the company to make efficient.
Years two and three are where Engineering will see the biggest changes. For a tech company, Engineering is where the crown-jewels are polished and set; you don't fuck with that until you have the rest of the org settled.