Secondary Stock Transactions

What is a secondary stock transaction and how does it impact my 409a?

When preparing to request a new 409a valuation, it is important to consider whether there was a secondary stock transaction or share repurchase that occurred prior to the valuation date.

A secondary stock transaction is any purchase or transaction of Common or Preferred Stock that is not related to a primary financing event. Specifically, any sale of shares from an existing investor or shareholder.

Secondary transactions come in many forms: 

  • liquidity for founders as part of a financing round
  • company tender offers 
  • sale of stock by early investors or employees to a third party. 

It is important to understand the nature of these transactions when considering the potential impact on your 409a valuation. 

Specifically, the following questions should be carefully considered:

  •       When did the transaction take place?
  •       Who were the buyers and who were the sellers? How are they related (if at all)?
  •       What was the total number of shares sold and at what price?
  •       How was the share price determined?
  •       Did the buyer have full access to relevant information about the company? (eg. financial plans and forecast)
  •       Can every shareholder sell shares at this price?
  •       Was this a one-off event or a recurring transaction?

The answers to these questions are important to review when evaluating the potential impact of a secondary transaction on a 409a valuation. Recently, auditors and the SEC have placed more scrutiny on secondary transactions in private companies. For this reason, it is crucial to discuss these events with your analyst while working on a 409a valuation.

For case-specific questions around what qualifies as a material event, please contact

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