Single Trigger Acceleration
A single-trigger acceleration is a full or partial acceleration of vesting of someone’s stock (options) based on a single event.
A single-trigger acceleration is a full or partial acceleration of vesting of someone’s stock or options based on a single event. The trigger for acceleration is the event. Key executives and founders negotiate into their agreement for equity that they will be entitled to a form of vesting acceleration upon a triggering event.
A typical triggering event is the sale of the business, but it can also be the termination of employment. The acceleration that is solely triggered by the sale of the organization is known as a single trigger acceleration. In connection with the sale, this will result in all or some of the vesting restrictions ceasing. If an involuntary termination triggers acceleration, it is a less popular form of a single trigger and may introduce many issues. It may also be a part of the severance package for an executive.
Investors usually dislike the single trigger acceleration upon a sale. They do not like this because they have concerns that it will push a potential acquirer away. Typically, an acquirer wants the ongoing operations to be secure and continue smoothly with his business’s integration. The acquirer will have to take a higher retention package to retain the key employees if the vesting scheme in place for key employees ceases. A more comprehensive post-closing plan will make the transaction expensive for the acquirer. It can also be offset by reducing the consideration for the shareholders and accelerating the closing options.
Other issues that may arise during this time are the concern about the massive amount of cash transfer to the executives and the formulation of retention packages that should be sufficient to keep key employees in their jobs post-acquisition. This period of acquisition is a difficult period due to the integration of new bosses and corporate bureaucracy.