Rollover Equity Explained
- Bryan Ducharme
- Nov 19
- 4 min read
When you sell your company, you might not have to sell all of it. In many sales, especially those involving private equity buyers, the buyer may ask you to “roll over” some of your ownership into the new company. That’s called rollover equity.
It means you take part of your sale price in the form of ownership in the buyer’s new company instead of cash. You still get a big payout, but you keep a piece of the business and stay invested for the next chapter.
Why Buyers Propose Rollover Equity
Buyers like rollover equity because it keeps you engaged after the sale. When the former owner still owns part of the business, the buyer can feel confident that you’ll continue to help it grow. It also lets the buyer use less cash at closing, which can make deals easier to finance and close.
Why Sellers Agree to Rollover Equity
For many sellers, roll-over equity is a way to have a second payday down the road.
You get most of your money up front, and if the business grows and sells again later at a higher price, your remaining ownership could be worth even more.
It’s also a strong signal of confidence: you’re telling the buyer and investors, “I believe in this company’s future, and I’m willing to stay in the game.”
How Rollover Equity Works
At closing, you’ll receive most of your payment in cash and a smaller portion in partial ownership of the buyer’s new company.
You’ll keep that ownership until the buyer sells the business again, typically within three to seven years. When that happens, you’ll get paid out again based on your share of the new sale price.
It’s important to know that this second payment isn’t guaranteed. The new company has to perform well for your rollover to pay off.
Typical Ranges
When a deal involves rollover equity, sellers usually roll over 10 – 20%, but in some circumstances, sellers may be asked to roll over up to 40% of their ownership.
The percentage depends on:
How much you’ll still be involved after the sale
The buyer’s financial structure
Your personal goals for cash at closing versus long-term upside
If the buyer is asking for a higher rollover, make sure the future growth opportunity truly justifies the risk.
Roll-Over Equity In Lower-Middle-Market Deals
While many small-business owners think rollover equity is only for large deals, recent data shows it’s becoming common even in smaller transactions. GF Data, a major middle-market transaction database recently expanded its reporting to smaller deals and found that almost 30% of transactions under $10 million surveyed had a rollover equity component averaging just under 13% of total enterprise value. The transactions with rollover equity traded at a higher EBITDA multiple (6x) than transactions without rollover equity (4.3x) suggesting that buyers placed real value on the continuity and alignment of interests associated with rollover equity.
Risk With An Upside
Rollover equity has it's risks. If the business struggles or never sells again, your rollover equity could be worth less or even nothing. You’ll also lose control of most of the daily decisions that you’re used to, since the buyer will now be running the company. All post-closing payments, including earnouts and seller notes, have similar risks.
The advantage of rollover equity is that there is a potential upside. If the new owners grow the business and sell it later for more, your rollover could be worth far more than what you gave up in cash at closing. This is often referred to as getting a “second bite of the apple.”
What to Ask Before You Agree
What exactly will I own?
Will my new shares have the same rights as the buyer’s, or will they be junior shares?
When will I be able to sell my shares?
Is there a clear plan or timeline for the next sale? Will the buyer create buy-out opportunities for you before the new entity sells?
If you’re staying involved, clarify your role, compensation, and how major decisions will be made. Will you have voting rights on the board, advisory rights or no board presence at all?
What happens to your role as additional companies are acquired and the company grows?
If new investors come in or the company raises more money, could your ownership be diluted?
Is this structure fair for me?
What are the tax implications of rolling over equity?
Work with your M&A advisor, your attorney and tax professional to understand how much risk you’re taking and what you stand to gain.
Final Thoughts
Rollover equity can be a smart way to share in your company’s future growth while taking home significant cash today, but it also introduces new risks and requires trust in your buyer and confidence in the company’s next phase.
If you’re considering a sale that includes roll-over equity:
Be clear about your financial goals.
Understand how your new ownership will work.
Make sure you’re comfortable with the level of control and risk you’ll retain.
Handled wisely, roll-over equity can turn one good sale into two great outcomes the first when you close the deal, and the second when the company’s next chapter succeeds.
About Venture 7 Advisors:
Venture 7 Advisors is a team of merger and acquisition advisors who assist the owners of small and mid-sized companies to plan and complete the sale of their business. We find the best buyer to meet each business owner’s financial and legacy goals. We represent clients in consumer products, distribution, manufacturing, B2B services, construction, telecommunications, and eCommerce from offices in Burlington, Vermont, the Hudson Valley, New York, and Western Massachusetts.
We're here to talk about your situation, provide information, discuss your options, and put things in perspective. Contact us at any time:
Bryan Ducharme
Managing Partner
Mobile: 802 578 6462
