Four Steps to Prepare Your Equity Comp Plan for an Acquisition

By Jim Vincent. Preparing for an acquisition can feel a bit daunting for most. There are lots of moving parts and decisions to be made – not only about the course of action for the company and its employees, but also for the equity awards of both the parent and the target company. While many of these decisions and actions will be made once the acquisition process has begun, there are a few steps you can take in advance to better prepare your equity compensation plan for a corporate action.

1. Check Plan Docs for CIC Clause

It’s likely that your company’s plan document and the plan document of your acquiring/acquiree company do not align. Specifically, you should check these documents for any language surrounding a change in control (CIC). If your plan document does have a CIC provision, this clause will provide guidance around how this corporate action will affect your participants, your equity awards, and your organization. This is especially important for the target company, as you actually undergo the change in control. In this provision there may also be guidance around what is a suggested course of action for the target company’s equity awards.

2. Discuss Which Vendor to Use Going Forward

It is important to consider which company’s equity compensation software vendor you will keep once the acquisition is complete. Does it make sense to keep both for a period of time or go ahead and make the full transition over to one system? Ideally, both companies would already be using the same vendor (wouldn’t that be great?). There are a variety of factors that can impact which system to move forward with including: the number of participants the parent/target company has, the recurring cost for the software, functionality of the software platform, the familiarity of the stock option administrators with each system, and so on.

3. Develop an FAQ Document for Participants (and Modify It Often)

Participants are going to have questions. Give them a place to reference the frequent, most common topics and make sure to keep it up-to-date. Consider your FAQs as a live, active document that needs to be updated and modified often. You should re-evaluate the relevance of the information in the document throughout the acquisition process, and when new information comes to the forefront. As changes occur and new questions arise, make sure this is one of the first items updated. In the long run, this can save you valuable time and energy, as it will become the go-to resource for participants with basic questions. Are you getting a question often? Hint – that means it’s time to update the FAQ!

4. Create Before and After Statements for Participants

Once you begin to see light at the end of the tunnel, and you can accurately predict the course of action post acquisition, prepare before and after statements for your equity plan participants. Employees will likely have a number of concerns, and it is important to let participants know what will happen to their equity awards. Preparing this information gives them adequate time to make any necessary decisions should they choose to do something with their equity awards as a result of your corporate transition.

Which of these four steps would you consider most crucial to the planning process? Write a comment below for any additions you would consider while preparing for an acquisition!

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