Tender Offer Ahead? When To Sell (or Hold) Your ISOs, NSOs & RSUs

True Root Financial is a fee-only financial advisor and financial planner based in San Francisco, CA. We serve clients across the globe.

When your private tech company offers a tender opportunity, deciding which shares to sell is just as important as deciding whether to sell at all. High-earning executives need a clear framework to make the best choice for liquidity, taxes, and long-term wealth.

If you are a tech professional interested in learning how we can help you claim your financial independence by investing wisely, minimizing taxes, and maximizing your equity compensation, please book a no-obligation call here.

Key Takeaways

ISOs, NSOs, and RSUs have distinct tax implications that can dramatically affect your net proceeds
Selling RSUs or NSOs first is often the most practical way to unlock cash without triggering complex tax consequences
Holding ISOs strategically may allow favorable long-term capital gains treatment, but AMT exposure must be considered
Partial sales usually offer a balance between reducing concentration risk and preserving upside potential.

Understanding Equity Types In Tender Offers

High-earning tech executives in San Francisco often hold a mix of incentive stock options (ISOs), nonqualified stock options (NSOs), and restricted stock units (RSUs). Each behaves differently during a tender offer and carries unique tax consequences that can materially impact your financial outcome.

Before even deciding which equity to sell, the first question we usually ask clients is simple: do you mean a tender offer, and if so, what is the expected fair market value at the tender offer price? That number matters because what ultimately drives the decision is not the headline price, but how much you keep after taxes. If the after-tax proceeds are relatively small, participating may not meaningfully improve your financial situation. If the net proceeds are attractive, the conversation changes.

Everything flows from the tender offer fair market value.

Incentive Stock Options (ISOs)

ISOs are generally the most tax-advantaged form of equity if you meet the required holding periods: two years from the grant date and one year from the exercise date. When those requirements are met, gains may qualify for long-term capital gains treatment rather than ordinary income.

Because of this, ISOs are often the equity we recommend holding longer, especially if you believe in the company’s long-term upside and can manage potential AMT exposure. Selling ISOs too early results in a disqualifying disposition, which converts what could have been long-term capital gains into ordinary income and may trigger AMT.

There is another important practical consideration in a tender offer. In many cases, if you are selling ISOs, you will need to exercise and sell almost immediately. When that happens, you lose the tax advantage anyway. At that point, the decision becomes purely economic. Does selling now, even with ordinary income taxes, still leave you with strong after-tax proceeds?

If the net-of-tax proceeds are compelling, selling ISOs in a tender offer can still make sense. If not, it is often better to preserve their tax-advantaged potential and look elsewhere for liquidity.

Nonqualified Stock Options (NSOs)

NSOs are simpler from a planning perspective but less tax-efficient. When NSOs are exercised, the difference between the strike price and the fair market value at exercise is taxed as ordinary income. Any additional gain after exercise is taxed as capital gains, depending on the holding period.

Because NSOs already generate ordinary income at exercise, they are often better candidates for tender offers. Many executives use NSOs to create liquidity without giving up valuable long-term tax benefits associated with ISOs.

One planning question that frequently comes up is timing. If we expect the tender offer’s fair market value to be meaningfully higher than today’s 409A valuation, it may make sense to exercise some NSOs earlier. Doing so could mean paying ordinary income tax on a lower value now rather than a higher value later.

That said, this approach comes with risk. You are using out-of-pocket cash to exercise stock in a private company, and liquidity is not guaranteed. For some clients, waiting until the tender offer and exercising and selling at the same time is the more comfortable choice. Both approaches can work, depending on risk tolerance and cash flow.

Restricted Stock Units (RSUs)

RSUs are often the cleanest equity to use in a tender offer. They are taxed as ordinary income when they vest, based on the fair market value at that time. Once vested, any additional appreciation is taxed as capital gain.

Because the income tax has already been paid at vesting, selling RSUs in a tender offer usually results in straightforward capital gains treatment. There is no exercise decision, no AMT exposure, and no expiration risk.

For many high-earning executives, RSUs are the first shares sold in a tender offer to generate liquidity quickly and efficiently. This is especially true when the goal is diversification rather than maximizing tax deferral.

Factors To Consider Before Selling

1. Liquidity Needs

A tender offer can provide cash to fund major purchases, pay taxes, or diversify your portfolio. Many tech executives in San Francisco have a large portion of their net worth tied to a single company. Selling a portion of equity can meaningfully reduce concentration risk and increase financial flexibility, but only if the after-tax proceeds are worth it.

2. Tax Implications

Taxes are often the deciding factor. Selling the wrong equity at the wrong time can lead to higher ordinary income, short-term capital gains, or unnecessary AMT exposure. Understanding how each equity type is taxed and how the tender offer’s fair market value affects that taxation is critical. This is where working with a fiduciary advisor can add significant value.

3. Concentration Risk

Even strong companies carry risk. Market conditions, layoffs, or changes in leadership can quickly affect valuation. Selling RSUs or NSOs first often helps reduce risk while preserving upside through remaining ISOs or long-term holdings.

4. Timing and Expiration

Stock options expire, and some RSUs require both time-based and liquidity-based triggers. Executives considering a job change should pay close attention to exercise windows and expiration dates. Tender offers can provide a rare opportunity to unlock value before it disappears.

5. Partial Sales Strategy

Very few executives sell all their equity during a tender offer. Partial sales allow you to unlock cash, reduce risk, diversify, and still participate in future upside. This balanced approach is often the most effective and aligns well with long-term financial planning.

Final Thoughts

Deciding whether to sell ISOs, NSOs, or RSUs during a tender offer is a nuanced decision for high-earning tech executives in San Francisco. The right answer depends heavily on the tender offer’s fair market value and, more importantly, how much you keep after taxes. ISOs often make sense to hold unless the net proceeds are compelling. NSOs and RSUs are frequently better tools for liquidity.

A thoughtful, fiduciary-driven approach helps ensure you are not just reacting to a tender offer, but using it strategically to support your long-term financial goals.

Your Next Steps

Working with a fee-only fiduciary can help model different scenarios, evaluate after-tax outcomes, and align equity decisions with your broader financial plan. When a tender offer arrives, having a clear framework in place can make all the difference. If you’re interested in learning how we can guide you toward financial independence, take the first step. Book a commitment-free introductory call here: