Following a few years of high valuations and numerous initial public offerings (“IPOs”), 2023 saw a dwindling of IPO activity and many companies going private. In 2023, 19 publicly traded Canadian firms (worth ~$12.5 billion) went private, while only one company had an IPO on the TSX¹. This increase in go-private transactions may continue as many public companies face challenging market environments.

Against this backdrop, companies must consider the compensation implications of a privatization event (here, we are specifically referring to a transaction where there is a buyout of the public shares). This article will focus on decisions related to equity compensation for the executive team through the transaction, using the following framework:

I.  Privatization context

II.  Treatment of outstanding equity awards

III.  Considerations for transaction and go-forward equity awards

I. Privatization Context

As with all compensation matters, the first step is to understand the broader context to set the foundation for tailored and informed decisions. Below we outline key topics and questions:

II. Treatment of Outstanding Equity Awards

The next step is to understand the status of outstanding compensation awards for the executive team and determine the appropriate treatment. This includes gathering information, preparing a set of guiding principles, and assessing alternatives against those criteria.

III.  Considerations for Transactions and Go-Forward Equity Awards

Once the treatment of outstanding equity is decided, the final part of the framework is determining the structure of any grants that will be granted at the time of the transaction, and as a newly private company:

Conclusion

As companies contemplate whether they undertake a go-private transaction, they must also consider any associated compensation implications. Once there is alignment on the context and rationale for a privatization event, Boards can determine a set of guiding principles which will help determine the appropriate treatment for outstanding equity and go-forward equity awards.

¹ Take-Privates in Canada Outnumber IPOs, Wipe Billions off TSX as Market Treads Water, Financial Post, 2023. 

Canadian M&A Outlook 2023, Torys, 2023.