How private-company tender offers work
A step-by-step walkthrough of a private-company tender offer — from the moment a buyer is identified to the day proceeds settle in eligible sellers' bank accounts.
Direct answer
A private-company tender offer is structured around six phases:
- Buyer identification and pricing
- Deal sizing and eligibility scoping
- Document preparation and regulatory check
- Launch and the offer window
- Election processing and allocation
- Settlement
The company itself never trades shares directly. It facilitates a structured program supported by an information agent, a paying agent, a cap-table provider, and counsel.
Phase 1 — Buyer identification and pricing
Most private-company tender offers begin with a buyer (or a syndicate of buyers) approaching the company, or vice versa. The price is then negotiated, typically informed by a recent or simultaneous primary round and an updated 409A valuation.
The buyer commits to deploying a maximum amount of capital. That maximum sets the headline size of the tender offer.
Phase 2 — Deal sizing and eligibility scoping
The company decides:
- Who is eligible. Typically current and former employees with vested holdings, plus select investors.
- What securities are eligible. Common stock is most typical; preferred and vested options are sometimes included.
- Per-seller cap. The maximum percentage of vested holdings each eligible seller may tender.
- Aggregate size. The total size of the program in dollars or shares.
These choices drive everything downstream — including how oversubscribed the offer is likely to be.
Phase 3 — Document preparation
Issuer counsel drafts the offer-to-purchase (the binding terms), the letter of transmittal (the seller’s election form), and the broader disclosure package. The legal team also confirms the operational structure satisfies the relevant U.S. tender-offer rules — generally Rule 14E for tender offers and, for self-tenders, Rule 13e-4.
The information agent is engaged to handle communications with eligible sellers. The paying agent is engaged to handle proceeds. The cap-table provider prepares the eligible-seller list and election infrastructure.
Phase 4 — Launch and the offer window
The offer is launched. Eligible sellers receive the offer materials. The window typically runs at least 20 U.S. business days. During the window:
- Eligible sellers can review the materials and ask questions through the information agent
- They can submit, modify, and withdraw elections
- The cap-table provider tracks all elections in real time
Reminder cadences from the information agent matter — participation is highly sensitive to the last few days of the window.
Phase 5 — Election processing and allocation
After the window closes:
- Total elected shares are aggregated
- If the total exceeds the cap, pro-rata allocation scales every elected position by the same factor
- Withholding tax is calculated for each seller, where applicable
- Final accepted share counts and proceeds are computed per seller
Phase 6 — Settlement
The buyer wires funds to the paying agent. The paying agent disburses net proceeds to each eligible seller (typically by ACH or wire), and the cap-table provider records the share transfers. Sellers receive an acceptance and confirmation of accepted shares, allocated shares (if oversubscribed), proceeds, and any withholding.
After settlement, the closing binder is assembled and the program closes administratively.
What can go wrong
- Eligibility errors — incorrectly scoped lists are the most common operational issue
- Tax surprises — sellers misunderstand withholding mechanics
- Communication gaps — sellers miss the deadline or fail to respond to KYC
- Cap surprises — sellers misunderstand the per-seller cap or oversubscription mechanics
A good information agent prevents most of these.
See also
Educational reference only — not legal, tax, or investment advice.