Alphabet (GOOG, GOOGL) is nearing a deal to acquire cybersecurity startup Wiz for about $23 billion, according to a report from the Wall Street Journal. For employees of a company about to go public, questions may arise around how it affects their wallets and/or future stakes in the company.
Citi Wealth At Work head of investments Mike Remak joins Wealth! to give insight into what employees and investors need to know about the IPO market.
In terms of what employees need to keep in mind when they’re company goes public, Remak states: “It really comes down to the deal terms and each deal is different. And obviously some of these acquisitions are in cash and others are in stock. But I think the main thing, again, is understanding not only when you can sell your shares, but also thinking about considerations such as taxes, right? Because when one does eventually liquidate that company stock, you are going to have to pay capital gains. There are some ways to mitigate portions of that.”
For more expert insight and the latest market action, click here to watch this full episode of Wealth!
This post was written by Nicholas Jacobino
Video Transcript
Google parent company alphabet reportedly in advance talks to purchase cyber security firm Whiz for $23 billion.
This according to the Wall Street Journal.
Now, if you’re an employee of whiz or for that matter, any other public company or a company that may be in talks to either go public or be purchased.
You may be wondering how it all might affect your bottom dollar and your financial future.
So for more, let’s welcome in Mike Rack, who is the city wealth at work?
Head of investments here, Mike.
Great to have you back in studio with.
Thank you for having me back.
Absolutely.
Let’s talk about this.
I mean, this is a core wealth creation event for a lot of people when they find out that their company is either going public or ready to be sold.
What is just the market landscape looking like right now for companies set to tap the public market in terms of the market landscape.
We’re seeing very promising trends both in equity, capital markets or the IP O market as well as M and A.
We’re seeing a big pick up this year in both areas and we do think that’s going to continue.
Uh There are a number of reasons for that.
I mean, number one, we went through a long period without a lot of deals.
And so there’s a tremendous amount of pent up demand.
But we also know that uh CEO S and companies like to see sustained periods of a strong stock market and low volatility to feel confident that it’s time to come to the market.
And so for the other side of that too, say your company is about to be acquired here because that, that is what really caught our attention here this morning when employees are also about to have a wealth creation moment, not as a result of going public, but as another larger suitor says, OK, we see a way to make this business ac equity to ours.
And so within that, there’s also that wealth generation moment for a lot of those existing employees at the smaller company or the acquired company.
A absolutely.
And for many of those employees that wealth inflection point may be the most significant that they see over their careers.
And so I think it’s important to really understand the facts and circumstances.
So take for example, an initial public offering, it’s normal if somebody’s been working for a private growth company and you know, working away for a few years that you see that light at the end of the tunnel that you can unlock some of that equity have liquidity be able to diversify.
But there are some major considerations, for example, uh there’s almost always a IP O lock up period, which is typically six months.
So for one thing, ensuring that investors understand when they can get liquid and how they can sell their shares is really important, you know, for a lot out there that are wondering ok, if my company goes public via a traditional route or gets acquired, how soon should I be expecting to tap into some of that liquidity as well?
What is that range like?
I mean, we’re talking about the the expiry period which of course, as you were mentioning about six months after the IP O.
But then where should you expect if your company is acquired how liquid that could be?
Because it comes down to the settlement two of that deal, it really comes down to the deal terms and each deal is different.
And obviously some of these acquisitions are in cash and others are in stock.
But I think the main thing again is understanding, not only when you can sell your shares, but also thinking about considerations such as taxes, right?
Because uh when one does eventually liquidate that company stock, you are going to have to pay capital gains.
There are some ways that you can mitigate portions of that.
Another important consideration I I started in the business uh in the late nineties in San Francisco and was front row for uh the tech bubble.
And I talked to a lot of investors during that period of time who had liquidity events and they were reticent to diversify.
They would say, uh you know, I, I created my wealth through my exposure to this, to this company.
Why would I wanna diversify that?
And we know that, you know, in a lot of those cases, the stocks went to zero.
And it’s important to consider, you know, taking some chips off the table not having all of your eggs in one basket.
Is there a correct kind of rule of thumb to think about when you do have that wealth creation moment, how much you perhaps are putting towards maybe uh a vacation, how much you’re putting away for, you know, just a rainy day fund and then how much you might be investing for long term?
And how does that rule of thumb?
How have you seen people successfully execute on that rule of thumb as well?
Look, I, I think most investors would be well advised to, you know, to the extent that their company stock is a significant portion of their wealth to ensure that that does not represent more than 50% of uh their total portfolio.
And even that would be a very aggressive bet.
So I think one of the things that we always recommend is to take a balanced view, uh if an investor does have a bullish long term view in their company, um number one, they’re gonna participate through their employment.
Uh Number two, you can have a plan for systematically diversifying over time.
And let’s remember that the broader stock market, the S and P 500 tends to double about every 7 to 10 years.
So diversification uh doesn’t mean that you’re necessarily taking all of your chips off the table.
It’s great to see you back here in studio Mike.
Uh Thanks so much for taking the time.
Thanks for having me.
I appreciate it.
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