Negotiate for ‘better’ stock in equity-funded acquisitions

To know what “better” equity is for the seller, it is necessary to understand what the “worst” and “best” stock is in the context an equity-funded acquisition by a private company buyer.

Beyond the standard set of rights that are usually enjoyed by all preferred stockholders, additional contractual rights of and reduced restrictions on enhanced preferred stock make it more likely that the holder of such equity will achieve liquidity of some or all of its holdings prior to an M&A event or IPO.

Additional contractual rights and reduced restrictions may significantly improve the desirability of common stock and perhaps place the holder in a better position than it would have been as a preferred stockholder.

To state the obvious, the first strategy to negotiate for better stock in an equity-funded acquisition is the first strategy in preparing for any M&A event: companies should do all they can to avoid being in a dire fire sale situation when a buyer comes knocking on their door.

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