Employee options can be a major value driver in M&A deals across media, marketing and advertising – but they’re often more complex than they first appear.
From agencies and production companies to digital platforms, understanding how share options are handled can materially impact both deal value and employee outcomes. Here are some key considerations:
Which options will actually vest and be exercised?
In an acquisition or merger, it’s common for employee options to ‘fully vest’ on exit. But in reality, it’s rarely that straightforward.
Unmet performance targets, time-based vesting conditions, or leaver provisions – all common in creative businesses – can restrict what employees are entitled to.
Some schemes include accelerated vesting on exit, particularly in fast-growth or founder-led agencies where retention is key. However, where vesting acceleration is subject to director discretion, care is needed.
For tax-advantaged schemes like EMI or CSOP, using discretion incorrectly can strip away tax benefits – creating unexpected PAYE and NIC liabilities for employees.
How will option exercises be funded?
In many creative businesses, especially those reinvesting heavily in growth, the exercise price can be significant.
If the deal is all cash, funding is often straightforward – with exercise costs and tax withheld from proceeds.
But in media and advertising deals, consideration is frequently more complex:
- shares in the acquiring group
- loan notes
- earn-outs tied to future performance
This creates a challenge. There may not be enough immediate cash to cover exercise costs and tax liabilities, particularly for holders of unapproved options.
In these scenarios:
- the deal structure may need adjusting to increase cash for option holders
- or early modelling is essential to identify potential cash shortfalls (‘gaps’)
Getting ahead of this is critical to avoid last-minute friction with key talent.
Tax pitfalls to watch
The big question is whether exercising options triggers PAYE and NIC.
Even tax-advantaged schemes (EMI and CSOP), widely used in the sector to attract and retain talent, can lose their benefits in certain situations, for example:
- EMI options granted below market value
- disqualifying events (e.g. employees leaving but retaining options)
- CSOP options exercised too early
Failure to correctly handle PAYE can lead to penalties and reputational risk – particularly sensitive in people-driven creative businesses.
Tax opportunities to maximise value
When structured correctly, employee options can be highly tax-efficient:
- EMI and CSOP options can allow gains to be taxed at Capital Gains Tax rates (as low as 18% for qualifying EMI)
- Employers can benefit from a Corporation Tax deduction based on the uplift in share value
In competitive agency deals, sellers will often seek to capture this tax value – for example, by negotiating higher proceeds to reflect the benefit of these deductions.
Why it matters in this sector
In media, marketing and advertising businesses, people are the asset. Share options are often a core part of how you incentivise and retain creative and commercial talent.
Getting the treatment of those options right in a deal:
- protects value
- avoids tax leakage
- and ensures key people remain aligned through and after the transaction
How we can help
Our Share Schemes team has extensive experience advising across the media, marketing and advertising landscape, supporting both buyers and sellers with:
- Sale readiness and vendor due diligence
- Buyer financial and tax due diligence
- Deal modelling and scenario planning
- Tax planning for founders and management teams
- Post-deal compliance
If you’re planning a transaction – or just want to understand how your option scheme will stand up under scrutiny – get in touch with David Bareham, Partner.
