SecondMarket helps companies facilitate and manage liquidity programs through a well-defined and robust process, designed to give companies better control as to how and when the transactions are executed.
Assessment and Presentation
SecondMarket partners with the company to determine the best strategy for its liquidity program based on the company’s specific goals, circumstances and needs. Common factors that are discussed include: the company’s objectives for the secondary transaction, current shareholder landscape, the company’s prior experience with secondary transactions, perceived risks, and risk mitigation strategies. From there, SecondMarket crafts a solution alongside the company and customizes it based on the company’s needs. SecondMarket can also assist the company in presenting that proposal to the management team and Board of Directors.
Defining the Market Structure and Mechanics
Defining the Buyers and Sellers
SecondMarket will work with the company to identify who should participate as a buyer or seller in the transaction. The company has full control over approving the buyers and sellers. The company may limit buyers to only existing investors, buyers already known to the firm, buyers SecondMarket introduces or a combination of these individuals. The company also identifies which sellers are allowed to participate, whether it’s ex-employees, outside investors or certain current employees. At the end of the selection process, the company has confirmed exactly who is participating in the program.
The company can set any limitation on the level of seller or buyer participation, including defining the maximum percentage of ownership possible for any buyer, the minimum and maximum limit on the number of shares sold, etc.
A key component of the market structure is the timing of when buyers and sellers can transact. A company may decide to conduct a one-time liquidity event or schedule liquidity events on a quarterly, semiannually, annually or other frequency. This decision is typically based upon the company’s objectives and anticipated liquidity needs in the future.
During this stage, SecondMarket reviews the potential pricing mechanisms with the company, including fixed-price, multi-lateral negotiations, competitive or auction format.
SecondMarket works with the company to make certain disclosure information is available via a secure and private process. Although information disclosure can depend on the status of participants and company circumstances, best practices generally dictate that the company-approved buyers and sellers receive equal and sufficient levels of material disclosure.
Participant Communication and Education
In consultation with the company, SecondMarket reaches out to company-approved buyers and sellers in order to gauge their interest and explain how the program works. Participants may be provided with a comprehensive education package that outlines all relevant details about the company and the transaction process. Any updates on the transaction process are sent to all market participants along with key dates and reminders.
SecondMarket onboards all participants, collects buy and sell interest and bids and offers, and manages all outbound communications, inbound inquiries and shareholder relations throughout the transaction process. SecondMarket executes the sale according to the market structure chosen by the company.
SecondMarket collects and coordinates all transaction documentation and agreements. SecondMarket also manages closing and settlement between the buyers and sellers, the company and its transfer agent. SecondMarket can collect the buyers’ funds in a special reserve account and, at closing, releases those funds directly to the sellers’ bank accounts. After the process is complete, the company receives a comprehensive post-transaction report that includes total transaction volume, clearing price, participants, etc.
The transaction process can be repeated in accordance with whatever timeline the company specified. The process becomes easier with each subsequent transaction and the program grows in value as a result.