Rollover Equity in M&A
Maintain partial ownership and participate in future value creation while achieving partial liquidity through strategic rollover equity structures.
Understanding Rollover Equity
Rollover equity allows business sellers to maintain ownership stakes post-transaction, participating in future value creation while achieving partial liquidity
Typical Rollover Structure
Cash at Close
70-80%
Immediate liquidity for seller
Rolled Equity
20-30%
Retained ownership stake
Hold Period
3-7
Years until next liquidity event
Benefits of Rollover Equity
Strategic advantages for sellers participating in continued business growth
Continue to benefit from business growth and value creation under new ownership
Defer capital gains taxes on rolled-over portion until future liquidity event
Demonstrate confidence in business prospects and align incentives with new owner
Potentially achieve higher total proceeds through future value appreciation
Rollover Structure Types
Different rollover approaches based on buyer type and transaction objectives
Structure
Seller retains 10-30% equity in new PE-backed entity
Timeframe
3-7 year hold period until PE exit
Best Suited For
High-growth businesses with strong management
Structure
Seller receives equity in acquiring company
Timeframe
Variable based on acquirer's timeline
Best Suited For
Synergistic combinations with public acquirers
Structure
Management team retains or increases equity stake
Timeframe
Tied to management incentive periods
Best Suited For
Management buyout scenarios
Key Considerations
- Upside participation in value creation
- Tax deferral on rolled equity
- Demonstrates confidence to buyer
- Potential for higher total returns
- Continued involvement opportunity
- Illiquidity for extended period
- Concentration risk in single asset
- Limited control over business decisions
- Uncertain timing of future liquidity
- Potential for value deterioration
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