FAQ: How Carta can help with your M&A

Author: The Carta Team
Read time: 7 minutes
Published date: April 11, 2024

At every step of the way, Carta can provide resources and tools to make your M&A less stressful. Here are answers to questions you might have about the process.

Contents: Offboarding from Carta (if applicable)

Stock sales

The target company in my deal is on Carta and is being asked to deliver stock certificates at closing. What do I do, since Carta issues electronic certificates?

There are three options a company can take here:

The first (and preferred) option is to draft a Letter of Transmittal form that accommodates the electronic nature of the target’s stock certificates. That should negate the need for delivery of physical stock certificates if none exist. More details on that below.
The second is to have Carta provide a Confirmation of Certificate of Cancellation for the target company to deliver to the buyer. You can request that from your customer success manager or Carta’s support team.
If the buyer insists on receipt of copies of physical stock certificates, the third option is to have the target company print copies of its electronic stock certificates using these instructions: https://support.carta.com/s/article/printing-security. Note that printing stock certificates in this way will have a “copy” watermark across them and may result in additional costs for the target company.

The target company stockholders need to execute a Letter of Transmittal. Is there anything Carta-specific that needs to be included in the letter?

A Letter of Transmittal is a document by which each stockholder of the target company confirms his, her, or its ownership in the target company as part of the process of exchanging that ownership for the deal consideration (cash or buyer stock).

In the days of paper stock certificates, confirming a stockholder’s ownership meant delivering physical certificates to the target company’s lawyers or paying agents at the time of signing and submission of the letter of transmittal.

But with Carta, certificates are electronic. So, as long as the letter of transmittal accounts for the fact that certificates are electronic and that the target company already controls the electronic certificates via Carta, that should be sufficient.

Part of the stock in my transaction is being held in escrow, to be released post-closing. Does the company need to maintain its Carta account during the escrow period?

You should discuss with your legal counsel if there are administrative tracking or reporting reasons to maintain the Carta account during the escrow period.

Immediately prior to your deal closing, you should download all of your Carta cap table data so you have an accurate record available outside of Carta. See this support article for more information.

Each class of stock has paperwork that needs to be populated with information from Carta. How can I pull the specific information that I need?

Review these support articles to familiarize yourself with securities ledgers on Carta, how to manage and filter them, and how to download them.

→ Securities Ledger Management & Filtering

→ How to Export Security Ledgers

Mergers

The target company in my deal is on Carta and is being asked to deliver proof of cancellation of stock certificates at closing. What do I do, since Carta issues electronic certificates?

The target company must start the offboarding process prior to requesting proof of cancellation of stock certificates. See the “Offboarding from Carta” section below for instructions on how to start offboarding.

Once you’ve started offboarding, you can request a confirmation of certificate cancellation from the company’s customer success manager or Carta Support. Carta can only sign the confirmation letter once the offboarding is complete, but can deliver an unsigned and watermarked draft beforehand.

Reach out to the company’s customer success manager or Carta Support in advance of closing if you have any questions on obtaining a confirmation of certificate cancellation.

Asset sales

For a company going through an acqui-hire, such that a portion of the team is joining the “buyer” and will no longer be part of the target company, what do I need to do in Carta?

You should consult the deal documents, as well as the impacted employees’ equity documents, and discuss in more detail with legal counsel. Generally, the equity held by the acqui-hired employees will be treated the same as any other employee who departs the company, unless otherwise approved by the board of directors in connection with the deal.

Private equity deals

My company is doing a recapitalization or rollup to a new private equity sponsor. Do I need to offboard and then re-onboard post-closing?

Probably. Even though the entity itself may continue to exist, because the PE sponsor itself is changing, we typically see the company offboard as part of the transaction, and then re-onboard with the new capitalization structure once the transaction closes.

Even if the capitalization structure isn’t changing completely, Carta can also assist with any new equity incentive program implemented post-closing. If you have questions about whether the target company will need to offboard and re-onboard, please contact the target company’s Customer Success Manager.

Can Carta help with building waterfall models for private equity deals?

Yes. Carta’s private equity platform has an advanced waterfall modeling capability that can calculate distributions for companies with complex liquidation preferences such as non pro-rata breakpoints, catch-up provisions, and MOIC/IRR-based performance vesting.

→ Learn more about scenario modeling for companies on Carta’s private equity platform.

Closing

Both the buyer and target companies are Carta companies. Can Carta just merge the cap tables to reflect the M&A transaction?

As mentioned above, M&A deals are usually of sufficient complexity that the two cap tables can’t just be “merged.” Parent companies also cannot “nest” accounts for subsidiaries within a parent company’s Carta account. If you have questions about this, please reach out to the Carta support team.

As described more below, the target company should be offboarded from Carta and then the equity consideration component of the deal should be reflected on the buyer’s Carta cap table.

As part of the closing process, there will be important stockholder communications. Does Carta have any tools to help with stockholder communications?

The Carta Communications tool allows companies to send one-way communication to stakeholders and track if those users have viewed the communication that has been sent.

While not recommended to be the primary form of communicating with stockholders in connection with an M&A transaction, the Carta Communications tool can be an additional means to alert stockholders to important information being delivered to the stockholders outside Carta so that the stockholders keep an eye out for those materials.

→ See here for more information on how to use the Carta Communications tool.

Payouts

Does Carta provide paying-agent services?

In the context of a M&A transaction, Carta does not currently provide paying-agent services. However, Carta has partnered with Odyssey Transfer and Trust Company ("Odyssey") to provide a more seamless experience for our customers engaged in M&A transactions. Odyssey is able to seamlessly accept cap tables from Carta to facilitate payments. If you are interested in using Odyssey for your M&A paying agent or other needs, please contact your Carta Customer Success Manager.

Offboarding from Carta (if applicable)

Can the target company assign its Carta contract to the buyer?

No. Carta cannot continue to service a company for which Carta is no longer serving as the transfer agent. The target company should offboard from Carta and, if the buyer is an existing Carta customer, then the buyer can update its cap table as needed to reflect the transaction.