Do private company shareholders leave money on the table when participating in tender offers?

We have data that suggests the answer may be: Yes. Sometimes.

Here’s what to look out for. But first… a quick primer on tenders:

At their discretion, private companies offer tenders to shareholders to turn illiquid shares into actual cash.

• Companies do this for many reasons, including employee retention and giving early investors a way to monetize.

• Shareholders participate by selling stock to reduce risk.

• Tenders are operationally burdensome and come with tax consequences. Our friends at @ NPM, @ Carta, @ MS offer ‘tender-as-a-service’ solutions to help companies.

@The Information has reported that the amount of volume flowing through company-sponsored liquidity programs increased in 2024. All signs point to this being a lasting trend. Article in comments.

So here’s the question: how are tenders priced? Are they priced efficiently? And who loses if not?

We analyzed recent publicly disclosed tenders and compared them to @Caplight Data secondary market activity. An interesting pattern emerged:

🙂 In most cases, when a private company offered secondary liquidity alongside a new primary fundraising event, the price was in line with or higher than secondary market demand at the time.

😟 In all cases, when a private company offered secondary liquidity without new primary fundraising, the price was significantly below secondary market demand at the time.

This could be interpreted as companies offering tender prices to existing shareholders below market prices, meaning shareholders are left to consider selling at lower than what they may have received in an open market. Sometimes up to 30% lower!

Before everyone freaks out, I’ll reiterate that our analysis is based on publicly available data—we could be missing some pieces of the puzzle. But here are some potential explanations:

1. Competition among buyers increases demand, which drives up prices: when a private company offers secondary liquidity alongside a new primary, sellers in the secondary benefit from the company’s auction process used to secure the primary round price.

2. Tenders with no primary component may focus more on employees and skew toward common stock sales. This would validate discounted tender prices, given common stock has less value than preferred stock.

3. Investors in standalone tender processes may recognize they are the only buyers in the room and negotiate better pricing for themselves. To companies, it may be better to take these deals for existing shareholders vs. do nothing.

Here at Caplight, we are pro-tender. We see this as a necessary release valve for the private market.

But this analysis begs the question: if you are running a tender program for private company shareholders, are you flying blind if you don’t consider secondary market demand as a price indicator?

Want real-time insights like this? Reach out at contact@caplight.com.

**Past performance is not indicative of future results.