How does a direct secondary transaction work?
A direct secondary transaction follows five steps: a first confidential discussion, a review of company information, agreement on price and terms, approval under the company's transfer rules, and signing and closing. With a specialist buyer and an aligned board, the whole process can take a few weeks.
What are the steps of a direct secondary sale?
First discussion. The seller and the buyer discuss the number of shares, the type of shares and the seller's objectives. A non-disclosure agreement is usually signed at this stage.
Information review. The buyer reviews the information available to the seller: shareholder agreement, articles of association, financial updates, cap table. Where needed, and with the company's agreement, the buyer may have access to more information.
Price and terms. The parties agree on the price per share, the number of shares and the conditions to closing.
Company approval. The transfer is notified to the company and handled under its transfer rules: board consent, pre-emption or right-of-first-refusal periods for existing investors.
Signing and closing. The parties sign a share purchase agreement, the price is paid, and the share register is updated.
What approvals does a share transfer in a private company need?
Most private companies restrict share transfers in their articles of association and shareholder agreement. Common mechanisms include:
Board consent. The company's articles can make any share transfer subject to the board's approval.
Pre-emption or right of first refusal. Existing investors or the company may have the right to buy the shares on the same terms before an outside buyer.
The applicable rules depend on each company's documents, which is why the review of these documents comes early in the process.
What does a "board-friendly" secondary mean?
A board-friendly secondary is one organized in cooperation with the company's board and management. The buyer accepts the company's transfer rules, does not seek a board seat or special governance rights, and makes sure the sale does not disrupt the company's operations, cap table or next funding round.
How are direct secondary shares priced?
The price is negotiated between buyer and seller. Common reference points are the price of the last funding round, the company's performance since that round, and the valuation of comparable listed companies.
Several factors explain differences between transactions:
Share class. Investors in funding rounds usually hold preferred shares with liquidation preferences. Founders and employees usually hold common shares, which carry fewer rights and are often priced lower.
Time since the last round. The longer ago it was, the less it reflects current value.
Information available to the buyer.
Size of the stake and the certainty and speed of closing.
How long does a direct secondary take?
It depends mostly on the approval steps in the company's documents and on how fast information is available. A specialist buyer working with an aligned board can close in a few weeks. Secondary Capital typically closes within three to four weeks once both sides have agreed to proceed.
About Secondary Capital Secondary Capital is a Swiss private equity fund based in Fribourg, Switzerland, founded in 2020, and a brand of PTF. It focuses exclusively on direct secondary transactions: buying existing shares from founders, management and early investors in high-growth private technology companies valued above $500 million, with tickets up to $50 million. Transactions are board-friendly, with no disruption to the company or its cap table. secondary-capital.com
This article is for general information only and does not constitute investment, legal or tax advice, or an offer to buy or sell any financial instrument.
