Deal StructureFinance
Rollover Equity
Also known as: Equity rollover, reinvested equity, stub equity
A portion of the seller's proceeds that is reinvested as equity in the newly acquired company rather than taken as cash at closing. The seller becomes a minority owner under the buyer's control.
WHY IT MATTERS
Rollover equity is pitched as alignment — "we want you invested alongside us." It's also a way for the buyer to reduce cash out at closing and tie the seller's upside to the buyer's next exit. A 20-30% rollover is common in PE deals. The rollover equity's liquidity depends entirely on the buyer's timeline to their next exit (typically 3-7 years). Rollover equity often comes with drag-along rights that force the seller into the next transaction whether they want to sell or not.