Talisman Talk


March 06, 2023

Catch a Wave, But Don’t Drown: What Women Need to Know About Liquidity Events

By Jennifer Kirby, CIMA®, CSRIC® |

In any market—even in one as tempestuous as this one—there are winners and losers. Right now, we are hearing more about the losers: people who have lost their jobs. (Check out my recent piece on what women can do in the face of layoffs.)

But less discussed and often as impactful is a liquidity event. Which is what, exactly?

Simply put, it's when a company or investor realizes the value of their investment by selling or exchanging their stake in the company. This can happen in several ways, such as an initial public offering (IPO), a merger, or a private equity sale.

The goal of a liquidity event is to turn an illiquid asset (a company or investment) into a liquid asset (cash), which can then be used to pay stakeholders. As an employee, you might be a financial stakeholder for a liquidity event or not. But you still have “skin in the game.” Keep reading to understand why, and what you can do.

A Current Example of a Liquidity Event by Merger: Village MD & Summit Medical Group
The recent merger announcement between VillageMD (owned by WalgreenBoots) and Summit Medical Group will bring together two leading healthcare companies to create a new integrated health care delivery platform. The goal of the merger is to provide better and more convenient access to healthcare services for patients.

VillageMD paid $9.8BN for Summit Medical. This is a classic liquidity event scenario. Employees at many levels of Summit Medical received liquidity event payouts. High-level employees, i.e., doctors and executives (mostly men, grrrrr), received most of the spoils, with smaller amounts going to lower-level employees (sometimes).

Women Are in the Game Now, Kind of

As a financial advisor to self-reliant women I am excited to see that more and more women are starting their own businesses, investing in startups, or holding positions in companies where they could potentially benefit from a liquidity event. There is more upside than ever before. But men still hold an outsized place in the liquidity event world, so women have less to gain and more to lose, quite honestly. So don’t get too starry eyed.

Given the more significant financial challenges that women face than their male counterparts, getting one’s financial ducks in a row is incredibly important in a liquidity moment. You must be especially careful and look closely at the implications to your career and bigger financial picture.

The Anaconda That Ate the Jaguar

Liquidity events can be a mixed bag. They are always accompanied by organizational change and a quest for increased enterprise value, which often means cutting costs. Someone is buying something while someone else is selling something. And you don’t get something for nothing. “No such thing as a free lunch” applies here.

For example: say you receive a $300,000 windfall. You feel anointed, imbued, quite literally enriched. You feel gangster. But then, two weeks later, you are called into the office and told that your role is redundant, and you lose your $300,000 per year job. Meantime you’ve already allocated your special windfall to more luxuries. This mental accounting is a phenomenon referred to as lifestyle inflation. I caution my clients around this when they suddenly come into money. Don’t fall for it!

For lower-level employees, the story can be even scarier. You may or may not get money but still end up losing a job. And now you have no job, and little to no financial cushion.

Don’t make the mistake of thinking these things could never happen to you. I work with many amazing self-reliant, accomplished women who believe that life and career will keep moving forward. But nobody is untouchable, no matter how great they are at their jobs. I see this all the time.

The universe giveth and the universe taketh away.

This is not to scare you; maybe a liquidity event will change your life for the good and opportunities for growth will rain down upon you. This does happen. Or even if things go sideways, another door opens, as they say. As a financial advisor to self-reliant women, I am a perennial optimist and encourage my clients to always look at the plus side. But I also work hard to help them manage their risk.

So How Do Women Ride the Wave Safely?

Ideally, think about your financial situation before something big happens at your company, but even if it is in the middle of a transition, ask yourself:

  1. What are the possibilities of what could happen to me?

  2. Conservatively, what is the soonest that changes could begin?

  3. How do I financially prepare for an adverse outcome?

  4. What are the long term financial impacts for me?

  5. Do I need to alter my goals? My timeline? The risk of my investments?

  6. How do I prioritize my financial needs and goals?

  7. What are the tax implications of a liquidity payout?

This is exactly the moment when a fiduciary financial advisor who works with women such as yours truly and a rock-solid CPA can make the difference. But don’t wait. As the old Hawaiian proverb goes, “You can’t stop the waves, but you can learn how to surf.”