Carta has a number of resources that can help companies moving through an M&A transaction.
Nothing in this FAQ guide should be viewed as supplanting legal and tax guidance during an M&A deal, but instead are resources that can supplement the process to make it easier and more efficient.
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:
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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.
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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.
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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.
The target company stockholders need to execute a Letter of Transmittal. Is there anything Carta-specific that needs to be included in the Letter of Transmittal?
See above.
Part of the stock being sold 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?
No, Carta does not provide escrow or paying-agent services, so we recommend the target company offboard from Carta upon closing as described below, and the escrow agent and paying agent be responsible for any subsequent releases of consideration held in escrow. However, Carta has partnered with SRS Acquiom for paying agent services—see more below.
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.
Post-asset sale, the target company will wind down its business and dissolve. What do I need to do in Carta?
Please see the “Offboarding from Carta” section below.
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.
In addition, Carta acts as a repository of stockholder contact information, so company management teams and external legal counsel can easily pull email and mailing addresses for broad stockholder communications.
→ Manage stakeholder contact information
The target company issued double trigger RSUs that will vest and settle at closing. Can Carta help with that process?
Yes, see this article for more information on settling RSUs individually. To bulk-settle RSUs, please contact Carta Support.
I need to draft or update an allocation spreadsheet reflecting the target company’s capitalization as of a future date. Can Carta do that?
Yes, you can run a cap table report as of a future date. While the report will show vesting as of that future date, draft securities will not be included in reports generated for a future date.
→ Learn how to export reports from your Carta account
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 SRS Acquiom to provide a more seamless experience for our customers engaged in M&A transactions. SRS Acquiom is the industry leader in M&A paying agent, escrow agent, and shareholder rep services. They are able to seamlessly accept cap tables from Carta to facilitate payments. As a Carta customer, you will gain the benefit of this efficient transition and access to the full suite of SRS Acquiom solutions through the last dollar out post-closing.
If you are interested in using SRS Acquiom for your M&A paying agent or other needs, please email carta@srsacquiom.com.
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. If the buyer is not already an existing Carta customer and wishes to use Carta’s services, it will need to open an account as a new customer.
When should the target company offboard from Carta?
As mentioned above, it would be best to notify your customer success manager or the Carta support team of the transaction after the letter of intent is signed and a closing date has been set. They’ll provide the requisite deadlines for Carta to meet the needs of your deal’s deliverables and closing date.
How does the target company offboard from Carta?
Make sure that your transaction has closed (note that some M&A transactions sign on one date, and then close days, weeks, or months later), and you no longer need any of the data housed on Carta. Once an account is closed, you will not be able to access the offboarded company’s data, which (importantly) does not include tax reporting information.
→ Learn how to offboard from Carta
→ Learn about what information and data we recommend the target company export when offboarding from Carta
The buyer in my deal needs access to my Carta data after the deal closes. Can Carta provide that?
Carta does not offer a historical access option to offboarding accounts. Prior to offboarding the target company, make sure that data is exported and retained by the buyer. Once offboarded, the target company and the buyer will lose access to all reports and data.
Does Carta do anything when a company offboards?
Yes, when any company offboards, Carta files a Form 17AD-16 with the SEC to report that it is no longer the transfer agent for the company.
Will there be refunds issued for any remaining portion of the Carta contract when the company offboards?
No, per the terms of Carta’s standard contract signed by all customers.
