
Ask HN: How do you evaluate a stock tender offer? - randomacct3739
I have to evaluate a tender offer for private stock from a previous employer with a deadline coming up. I have some updated financial statements but have no idea if this is fair or not. On the one hand, it would be smart to diversify since it’s decent sum of money in the “SF house money” size. On the other hand, it would suck if the shares were actually worth much more and sold prematurely.
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ralph84
Sell half. Keeps you in the game if there’s big upside while getting some cash
now if there’s not.

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wufufufu
I'm not disagreeing, but what's your background/reasoning for this advice,
specifically the "50%" part?

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khurram
When I worked in markets I would often get asked questions in the form of:
should I short X? Should I trade X currency now or later?

More specifically many questioned whether they should buy GBP/USD the day
before brexit or the day after. The only good advice is to buy 50% the day
before and 50% the day after, that way you are wrong both times.

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pbiggar
This is gonna be pretty hard to figure out. I'd recommend you take it to
someone knowledgable - a startup accountant or lawyer perhaps; they can give
you comparables. For the kind of money you're talking about you should
definitely have a lawyer looking over the docs.

I tried writing out some general advice, but there's so many possible
scenarios: is the company hot, is growth flat, is it trying to sell to someone
(PE firm or later stage investor), why are they even buying your stock?

I agree with ralph84 that selling some smaller number keeps you in the game
and also let's you cash out - founders and early employees regularly do this,
and they are big believers in future upside. Also remember that even if the
stock goes up in the future, you should price in the cost of having that money
now (everything from the appreciation of a house you may buy, to factoring in
expected value).

Main advice: get a lawyer. If you're looking for someone to talk through the
options informally, my email is in my profile.

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pleinair7
One common approach for valuation is to use comparable companies as a
benchmark. This is where you take a similar company's financial statements and
compare the relative valuation. The first step is to identify similar
companies and do a search for their valuations. Once you have similar
companies, you can use ratio like price/earnings to compare them. good luck.

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nicholas73
More likely the company at this stage is evaluated on earnings growth, not
absolute earnings. Or more nebulous, $/user. But it's a way to mentally check
whether the valuation is reasonable. Will the earnings growth grow into a
stable earnings fit for its market cap? A mature best of breed company (S&P
average) gets something like 22 P/E right now, but historically that
fluctuates as well based on earnings outlook and interest rates (which are
still historically low).

The last point on interest rates is overlooked by casual investors. Interest
rates drive valuation, because the risk-free Treasuries rate is the ultimate
comparable to other investments. Not only does it cause the P/E of mature
companies to blow up as people chase yield, it forces hot money to chase
earnings growth as prospective returns get miniscule. It also gives funds
massive borrowing power.

Basically, consider the risk of the whole thing blowing up even if the company
does not.

The last line sounds scary, and it could be, and if you don't know it's the
thing to really consider. Risk versus reward. Selling half seems like a
brainless way to make a decision, but the benefit of this is that it actually
lets you make a decision (you win psychologically both ways).

Companies do not do stock tenders all that often and it could be a good sign.
But it also happens that companies buy during good times when cash is flush.

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source99
Find a middle ground that won’t let you regret your decision. I tried this
once and felt pretty good about the results.

