Schneider National IPO – 5 Things to Think About (To Avoid Costly Mistakes)

By March 31, 2017Finances, Investing, Planning

Schneider National IPO – 5 Things Employees Should Think About (To Avoid Costly Mistakes)

Green Bay’s Schneider National is set to conduct an estimated $520 million to $580 million initial public offering of common stock. For employees of Schneider, it means planning ahead to handle this significant financial event. When you first hear that the company you work for is having an IPO, you might feel some confusion and have questions regarding how you’re affected. I’ve found that planning ahead of time can alleviate these feelings and answer your questions. I’ll cover 5 things you should be thinking about.

1. Do Your Homework

There are many questions for employees during the IPO process. It’s important to gather all the details regarding the IPO event and how it affects you. The company leadership should be communicating the deal’s details to you as well as letting you know any sort of allocation you will be granted (such as incentive stock options) or what opportunities you may have to purchase stock or stock options. Time is not something you have the luxury of when going through the IPO process, because usually you need to make time-sensitive decisions. These decisions can have different tax liability and risk consequences. So step one is simply gathering all information available to you so you have the complete picture. Working with a professional can help make sure you have your bases covered.

2. If You Are Going To Purchase Stock

It’s common for employees to have the opportunity to purchase stock in what’s called the ‘pre-IPO’, or before the company has actually gone public. If stock is not available in the pre-IPO, you may be tempted to purchase the stock when it hits the secondary market (public trading). It’s important to approach the decision to purchase stock just like you would approach any other situation to purchase stock. You work for the company so you are already “invested” because it’s where you receive your paycheck.

Does the company produce great value and is the current and initial price below what it is worth? What does the industry currently look like? What is your overall tolerance for risk? Knowing the answer to these questions can help you decide on how much you are willing to invest.

Another important aspect to consider is something called the “lockup period.” Since IPO events are often accompanied by large swings once the stock hits the secondary market, employees and company officials who purchase the stock during an IPO are usually required to hold the stock for a certain period of time before they are allowed to sell. According to Nasdaq, the lockup period is 180 days. What is your plan for divesting once the time period expires? This inability to sell for a set period of time represents a risk in purchasing the stock, so it’s important to make a plan ahead of time for how you plan on selling stock once the lockup ends.

If you are someone who has intimate knowledge of company financials before the general public (known as Material Nonpublic Information MNPI), you may be required to participate in a 10b5-1 plan. According to Investopedia, a 10b5-1 plan is a rule established by the SEC to allow insiders of publicly traded corporations to set up a trading plan for selling stocks they own. This allows people who have close knowledge of financials to sell stock at a predetermined number and a predetermined time and avoid any allegations of insider trading.

3. If You Are Granted Stock Options

As a form of compensation, companies such as Schneider who are going through an IPO may issue stock options. Many times there are vesting schedules associated with stock options that are important to be aware of. Vesting is the time period before that compensation actually becomes yours. Depending on the type of stock option, there may or may not be tax consequences when the options are granted and exercised. For incentive stock options, ISOs, the grant is not a taxable transaction. Also, when an ISO is exercised (stock is purchased) there are no taxable events. However, exercising an ISO may trigger the Alternative Minimum Tax (AMT).

It’s important to work with a reputable advisor and accountant when dealing with stock options to make sure you are optimizing your taxes. Even if you normally use an online tax service (i.e. TurboTax), it’s well worth the small price to make sure you’re handling stock options correctly.

4. Manage Your Expectations

There are a lot of stories about employees making big money when the company they work for has an IPO. The problem is that the stories of the opposite don’t often make the headlines. It’s important to temper you expectations. Even if you simply plan on purchasing stock in the pre-IPO, it’s important to realize that while there may be big price swings in the early time period after the stock starts trading, you will likely be beholden to the lockout period that prevents you from trading these swings.

If you plan on purchasing stock after it has been released to the secondary market, it’s important to know that stocks generally trade in heavy swings when first opening. By managing your expectations prior to the IPO, you can ensure to avoid feelings of disappointment later on if the stock doesn’t perform as you expect.

5. Get A Plan

One great thing about going through an IPO is that it forces you to take a hard look at where you are financially and to do some planning. A huge obstacle people have is getting over the laziness and “I’ll plan later” attitude. An IPO may just be the jolt you need to start taking your finances seriously. If you plan ahead, you’ll benefit from having an actionable list of things to do that will move you speedily towards your goals.

Do you even know what your investments are doing? If you are in your 50’s, have you started to seriously plan for income in retirement? If you are younger, in your 30’s or 40’s, and haven’t started saving for retirement or planning for your children’s college, it’s probably time to put a plan of action together to make it happen. You don’t want to be this person: The $863,386.55 Mistake You’re Making At Age 30

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Nothing in this article should be construed as a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Vision Wealth Partners clients. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances. Vision Wealth Partners assumes no responsibility for the tax consequences to any investor of any transaction. Past performance is no guarantee of future results.

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