The Day Your Company Gets Acquired.

The all-hands invite often shows up with almost no notice and no agenda. By the time it starts, the press release is usually out, and if your company is public, the stock is already moving toward the offer price. Somebody on your team has run the math on their RSUs at the deal price, out loud, in a channel with forty people in it.

Then the FAQ arrives. Read it, it’s useful. In public deals that FAQ often gets filed with the SEC as part of the deal’s official communications, which usually means lawyers went over every word before you saw it. Some even say right in the text that certain questions can’t be answered until the deal closes. It was written to be true for everyone in the building at once.

It feels like the decision just got made for you. Very little about your equity actually changes that morning. A clock starts, and from here the deal documents decide what happens to each piece of what you own.

And your equity is more than one thing. Shares you already own outright, from vests you held or an ESPP purchase, generally get converted at closing into whatever the deal pays, cash, the buyer’s stock, or a mix, the same as any other shareholder’s. Vested options you haven’t exercised are often cashed out for the difference between the deal price and your exercise price, or converted into options in the buyer. Options with an exercise price above the deal price can be cancelled for nothing.

Unvested grants are where most of the surprises live, because an unvested grant is a promise, and in an acquisition the promise gets handed to someone new. The buyer commonly converts your RSUs and options into its own awards on your same schedule. Some deals turn them into cash payments that keep vesting. Some award agreements speed up vesting only if the deal is followed by losing your job within a set window. Full vesting the day the deal closes does happen, though less often than people tend to assume. In some cases unvested awards can be cancelled. The ESPP’s current offering period often gets cut short with one final purchase, and then the plan ends.

All of that gets decided in the merger agreement, read together with your company’s equity plan and the award agreements you clicked to accept when each grant arrived, probably without reading them. When the company being bought is public, the merger agreement is usually filed with the SEC within a few business days, and anyone can pull it up for free through the SEC’s search, called EDGAR. Search the agreement for the words “equity awards” and you’ll usually land on the section that covers your pieces. The press release and the FAQ are summaries of it.

Not every deal closes. Regulators can block one and shareholders can vote one down. The gap between the stock price and the offer price is partly the market’s own estimate of the chance the deal falls apart. Closing can also be a tax event, depending on what you’re paid in and how the deal is structured. The long disclosure document that goes to shareholders usually has a section on tax consequences, and that’s the section your CPA needs to see.

The first useful move after an announcement is a list of every piece you hold, how much of it, which document decides it, and the first date it touches. The costly mistakes I see around deals usually start with treating all of it as one number, like that math in the channel, or with waiting for the FAQ to say what to do with yours.

This is the first of a few letters on what a deal does to your money. Friday is about the part of an all-stock deal that catches the most people off guard. The day before closing you own your company, and the day after, you own one you didn’t pick.

Talk Friday.

— Mateo

P.S. If your company is in the middle of a deal right now, there’s a deal checklist at bfawealth.com/deals.