What Happens to My Equity Compensation When My Company is Bought Out? Ep 50
Today's episode of the Equity Compensation Guidebook is about what happens to your equity compensation if your company is bought out, merges, is acquired, or whatever it may be. I have had a few people ask about the topic specifically, so this one's for you! I will also touch briefly on what happens to if the company goes completely under, but that's a short depressing explanation so we won't start there. As always it’s short and to the point so have a listen!
You will want to hear this episode if you are interested in...
- What happens with non-qualified stock options? [1:08]
- What happens with restricted stock units? [5:04]
- What happens if your company goes under? [9:54]
- This week’s FLASHBACK [11:13]
Options for your Options
How about we first talk about non-qualified stock options, also known as options. Vested options should be secure, but this is not guaranteed. You're gonna need to check your plan, the devil is in the details of the document itself and that's why I harp on keeping it in a safe place. Typically if your company is acquired by another, you merge into the company that acquired yours. Assuming the agreement language is solid, the new company has to honor your vested options.
If the new company acquires the assets of your company the acquirer is taking the assets of the smaller company and not necessarily the stock in these situations. It really depends on the acquisition language. You will need to check with your employer, whether that's the old one or the new one, or maybe both. For unvested options, the future is a little less clear in a merger or if the company's acquired. Your unvested options could be canceled, cashed out, or simply replaced with unvested options of the new company.
Options for your RSUs
Restricted stock options will be similar to the options we talked about previously. Once your RSUs vest you fully own the company shares that were awarded as part of your grant of RSUs. In this case, you're looking at the terms of the deal. You are treated like any other shareholder, maybe you get a share in the new company for every share you own, or maybe one for two. Unvested RSUs are where it gets a little more complicated. A desirable possibility is you receive some cash for unvested RSUs. You may not get the full value, but at least you get something. That's better than another possibility which is that the unvested RSUs are canceled and you get nothing.
On the brighter side, unvested RSUs could be accelerated. Meaning they will vest sooner than planned. They could also be exchanged for unvested RSUs with the new company. With two options you still have restricted stock units, which is better than being cashed out, and definitely better than being canceled and left with nothing.
This week’s FLASHBACK: Summer bonus!
Since we're nearing the end of summer, I wanted to share how summer ended for me at Cedar Point, again, best summer job ever. When I worked at Cedar Point a million years ago, the park went to weekends only from Labor Day to the end of September. Those of us who went to school nearby signed agreements to work these weekends. We were incentivized to finish our contract with bonus money based on the hours we worked. In my case, the bonus was sizeable because I worked long hours on the train.
A buddy from Kent State that worked there worked a few of his weekends then decided not to go back for the last one. I thought this was nuts as he was losing out on his bonus! For me, the final weekend was a brief one. A cold snap came through and no one came to the park. Luckily, I stayed warm working a steam engine that has fire all day long. My boss said they were going with a skeleton crew for the final day and confirmed I would still get my bonus if I left early! It was perfect timing as I had a bunch of exams waiting for me the next week. That bonus kept enough money in my pockets until the next spring when I found a new job.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.