Rollover equity
Factual definition
A seller retains or contributes part of their ownership value as equity in the acquisition structure. The seller keeps an investment alongside the buyer rather than taking the entire value in cash.
Rollover equity in round numbers
Hypothetical closing amounts in US$ millions: a seller receives value of 40.5, takes 32.4 in cash before fees and taxes, and rolls 8.1 into the new company. The rollover is 20% of the seller’s proceeds. A sponsor contributes 19.0, making total equity contributions of 27.1. Assuming the same price per share, the same class of equity, and no other dilution, the seller owns 8.1 ÷ 27.1 ≈ 29.9% and the sponsor owns about 70.1%. Rollover as a share of proceeds and ownership of the new company use different denominators.
Scroll horizontally to read all columns.
| Investor | Equity | Ownership |
|---|---|---|
| Seller rollover | 8.1 | 29.9% |
| Sponsor | 19.0 | 70.1% |
| Total | 27.1 | 100% |
How Shayne Fitz-Coy uses Rollover equity
Ask a seller how much equity they are rolling. The number tells you how they expect the next five years to go.
Ten to twenty-five percent puts real money on the outcome. At five percent the stake stops changing how anyone behaves after closing.
The roll is usually structured as a tax-deferred exchange. Tax comes due on the cash taken at close, and the equity kept is taxed when it is eventually sold.
Rights should travel with the stake. Information, tag-along protection, and a veto on resale are the ones worth negotiating for.
Terms Related to Rollover equity
Second bite of the apple · Sweet equity & envy ratio · Cap table · Topco · Sponsor · Schmuck insurance · All of the glossary