Staying Private Longer and Tender Offers: 4 Considerations

With greater access to venture capital funding, ongoing market volatility and the regulatory demands of going public, many companies are choosing to stay private longer. While this trend allows private companies to retain control over their growth strategy, it may also limit their ability to leverage the power of equity ownership to attract and retain talent.

This dilemma has sparked a rise in private company issuer-led liquidity events, such as tender offers. To date, Morgan Stanley at Work has executed over 290 issuer-led liquidity events worth over $22 billion in notional volume.

“We have seen a rise in tender activity and liquidity planning this year,” said Ari Haber, a partner at law firm Fenwick. “For earlier-stage private companies, liquidity events help reward employees by enabling them to participate in the upside they helped drive. For later-stage private companies, liquidity events can help attract and retain talent, especially when competing for talent against public company peers.”

With a tender offer, companies retain control over the liquidity event by setting the terms of the offer.

In some cases, the company uses its own balance sheet capital to buy back employee equity. In other cases, investor(s) will be purchasing shares directly from stakeholders, but the terms are still outlined by the company. This structure allows companies to retain control over their cap table while potentially creating space for value-add shareholders, without causing dilution.

This was the route Figma took in their most recent tender offer.

“As a capital-efficient company, we didn’t need to do a raise to add primary capital,” explained Praveer Melwani, CFO at Figma. “However, we did want to build relationships with our long-term investors and partners by increasing their ownership stake in a non-dilutive way.”

Figma has run several tender offers over the years, so they’ve had the opportunity to learn from experience.

“With growing reliance on tender offers, it can be helpful for private companies to gain insight into how these events are commonly structured,” noted Emiley Jellie, Head of Private Company Liquidity at Morgan Stanley. “In terms of eligibility criteria, we typically see companies allowing their employees to sell 20-30% of vested equity in a liquidity event.  In 2024, for tender offers executed on our platform, we saw an average subscription rate of 75% and an average participation rate of 50%. This is a vote of confidence for companies running tender offers, as it indicates that employees are choosing to take some money off the table while retaining sufficient equity to participate in future growth.”¹

There are many moving pieces to coordinate when planning for a tender offer. Companies unfamiliar with the process sometimes underestimate the time and resources required. Beyond structuring the offer and setting eligibility parameters, companies may struggle to develop effective employee and investor communications and meet compliance and legal requirements.

To overcome these hurdles, Figma stressed the importance of starting early and building a strong internal team. Stakeholders from Finance, Investor Relations, Payroll, Equity Administration and Human Resources are integral to bringing the tender offer to life. Both internal and external legal, accounting and tax teams should be engaged, especially given the complexity of the tax treatment associated with tender offers. Investment bankers may also be involved if the offer is part of a capital raise. And an external partner, such as Morgan Stanley, can help to orchestrate the transaction and streamline the process.

Internal communications teams have a central role to play in helping to educate employees on everything, from how equity works to the logistics of tendering their shares through their equity administration platform. Some companies also bring on financial advisors who run educational sessions to answer questions and help employees structure financial plans that take their newfound liquidity into account.

“The equity employees hold is extremely personal to them,” shared Shawn Murphy, Head of Private Markets at Morgan Stanley at Work. “They’ve invested a lot of time in the company’s success, and it’s up to issuers to provide them with access to the right education and financial resources to help employees meet their financial goals.”

As the talent landscape continues to evolve, the expectation for liquidity is bound to increase. By thinking through their options for a liquidity event, private companies can streamline the process—and meet the shifting needs of their employees and investors.

Want to learn more? Watch the full discussion from our recent virtual event(opens in a new tab) exploring current market trends and evolving pathways to liquidity with a focus on tender offers, featuring Praveer Melwani, Ari Haber, Shawn Murphy and Emiley Jellie.