Rollover Equity

Rollover equity is when a selling shareholder reinvests a portion of their sale proceeds into the acquiring company or new ownership structure.

How Rollover Works

Company Value:        $10,000,000
Seller Ownership:     100%
Rollover:             20%

Cash at Closing:      $8,000,000 (80%)
Equity Retained:      $2,000,000 (20%)

Why Buyers Want Rollover

• Alignment: Seller has "skin in the game"
• Confidence signal: Seller believes in future growth
• Financing: Reduces cash needed at closing
• Transition support: Seller motivated to help

Why Sellers Accept Rollover

• Second bite: Participate in future value creation
• Tax deferral: Often treated as non-recognition event
• Higher total value: If buyer grows the business
• Deal enabler: May be required to get deal done

Typical Rollover Terms

Element	Common Range
Percentage	10-30% of proceeds
Term	Until next exit (3-7 years)
Rights	Often tag-along, drag-along
Governance	Board seat or observer rights

Rollover Tax Treatment

When structured properly:

• Rollover can be tax-deferred
• Tax only on cash received at closing
• Requires specific legal structure
• Consult M&A tax advisor