What happens to my investment stock in a startup pharma company, when 1) if it is brought out by a larger company or 2) when a larger company buys the start up company’s patent?
In: Economics
Question 1: Depends on the terms of the buy-out. Two common options are…
1) The larger company just pays out all remaining shares of the stock for a certain value. So say you have 100 stocks valued at $1,000 and they pay it all out, you’d get a $1,000 check or… deposit in your investment account. That is a taxable payout though, since you’ve realized the gains from the sale of the stock.
or
2) Your start-up’s stock just gets converted into stock in the larger company.
Question 2: That is much more ambiguous and depends on many different factors. For instance, if it’s a one time buy out, then you might see a one time bump in the value of the start-up’s stock (or… might see no difference, or it might lose value if that patent was for their one big product). If the start-up is getting royalties and fees from the sale of the patent and they have other products/services, then the stock might stay the same or it might go up since there’s a presumption of guaranteed income from the royalties. But this is just one of several dozens if not hundreds of factors that drive a company’s value, so the impact to stock value may be huge or may be really small depending on everything else.
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