Key Highlights

  • Compass announced its confidential S-1 document filing with Security and Exchange Commission to “go public” with initial public offering (IPO)
  • Compass agents typically have choice to defer portion of their commission income to purchase shares of company common stock at preferred stock price

 

  • Compass announced its confidential S-1 document filling with the Security and Exchange Commission (SEC)last week.  This filing was the first step towards the company’s intention of “going public” via an Initial Public Offering or IPO.

“Going public” via an IPO means selling part-ownership in a business by selling shares of that business to raise money from new investors.  Why sell part-ownership of a business by selling shares to new investors?  According to education.rask.com.au, to fund the company’s future growth, to sell a private shareholder’s stake in that business and/or to enhance the company’s reputation.  Compasshas said that the company has decided to go public in order to fund the company’s future growth.

Let’s begin with the fact that Compass agents generally have one of two types of equity in the company: restricted stock units (RSUs) or equity option grants. Since this post is not the appropriate place to get too technical about RSUs and equity option grants, let’s just say that RSUs and equity option grants both translate into X number of shares in the company  at the most preferred share price depending upon when the RSUs or options were awarded.

Agents can then sell their RSUs if and only if the agent is associated with Compasswhen the company’s board approves the RSUs.  (That approval date happens at the company’s first board meeting of the year and, unknown to us, may have already happened.)  Also, the agent can only sell his/her RSUs via a liquidity event, either an IPO or a sale, after a 201-day waiting period.  This means an agent can sell their shares even before they get access to their RSUs.  The same goes for stock options.  Agents with stock options can sell them after the company awards them at the company’s first board meeting of the year.

Agents with Compass,just as employees/investors in other companies going public via an IPO, must wait to sell their shares in the company for a lockdown period of 180 days after the company’s IPO.  (Agents who participated in the 2020 agent equity program need to wait to sell and additional 210 days. These lockup restrictions are set up to ensure that the public market is not flooded with too much supply, or too many shares of the stock, that could drive the stock price down.)

In the meantime of these stock lockdowns, whatever gains the company’s share price does or does not see, agents may see only paper gains rather than hard cash gains.  On the other hand, Compass agents may “hit the jackpot” via their equity interests as have other investors, agents and/or employees of high flying companies such as Google or Apple.

May I point out that executives in companies such as Compass do get to cash out on IPO day.  No waiting to “get” wealthy for executives while agents have to wait until the 210 day “lock up period” is over with the hope of “getting” wealthy.

Time will tell how wealthy current Compass share-holding agents may become.

 

Thanks to Inman.

 


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