Equity rollover: selling most of it and keeping a piece
An equity rollover means you sell most of your company for cash but keep a minority ownership stake in the entity that now owns it. You take real money off the table today and stay exposed to what the business does next. The value of the retained piece depends entirely on the governance terms attached to it.
Written and reviewed by Antoine Campbell. Last reviewed .
Rollover is attractive for the obvious reason: you believe the business has more in it, but you do not want your entire net worth riding on one operating company any longer.
It is also where sellers get hurt, because a minority stake with no rights is a lottery ticket someone else controls.
What you are actually receiving
You are receiving units or shares in the acquiring entity, not in your old company. What that stake is worth over time depends on the entity's debt load, its distribution policy, how new capital is raised, and what happens when it is eventually sold or recapitalized.
Questions to ask before you agree
If a buyer cannot answer these in writing, the rollover is decoration on the offer rather than value.
- What percentage, of what entity, and at what valuation is the rollover priced?
- Are distributions discretionary, or is there a required tax distribution?
- Can the majority owner dilute me by issuing new units, and at what price?
- Do I have tag-along rights if the majority sells, and am I subject to drag-along?
- Is there a defined path to liquidity, or a put right after a set number of years?
- What information do I receive, and how often?
- What happens to my stake on death, disability or divorce?
Rollover versus a seller note
Many owners take both: a secured note for certainty and a rollover slice for upside. Whether the rollover portion is tax-deferred depends on the structure of the transaction and must be confirmed by your tax advisor before signing.
| Seller note | Equity rollover | |
|---|---|---|
| Return | Fixed interest rate | Whatever the business produces |
| Downside | Protected by collateral if secured | Last in line behind all debt |
| Upside | None beyond the stated rate | Full participation in growth |
| Control | Enforcement rights on default | Governance rights only if negotiated |
| Tax | Often installment treatment | Rollover portion may be tax-deferred if structured properly |
How Maurant handles it
Retained ownership sits in the holding entity above the operating company, governed by an operating agreement that spells out tax distributions, information rights, tag-along protection, and a defined buyout on death or disability. Sellers see that agreement before the letter of intent is signed, not after diligence.
What Maurant needs to evaluate this
- How much cash you need at closing versus what can stay invested
- Your tolerance for illiquidity over several years
- The business's ability to service the debt used to buy it
- Your tax advisor's read on the rollover structure
When Maurant is not the right buyer
- Owners who need full liquidity now
- Owners who do not want any continuing relationship with the business
- Situations where the acquiring entity will not commit to governance terms in writing
Questions owners ask
- Is rollover equity tax-free?
- It can be tax-deferred rather than tax-free, and only when the transaction is structured to qualify. Confirm with your CPA before you agree to the split.
- Can I be forced to sell my retained stake later?
- Yes, if the agreement contains a drag-along right. That is normal, but you should have tag-along protection alongside it.
- Do I keep a board seat?
- Not automatically. Information rights and observer rights are more commonly negotiated at a minority level.
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