This article is the first in a series on common issues of critical importance to sellers in private company M&A
An equity roll is an agreement between a Buyer and a Seller in an M&A deal where the Seller (typically a founder or senior management team member) agrees to reinvest or “roll over” all or a portion of their ownership stake in the target company in lieu of receiving cash at Closing. Equity rolls are a key component in most sell-side M&A deals with PE buyers, involving a complex interplay of financial, strategic and personal factors that can significantly impact the Seller's decision. Sellers often desire to roll at least a portion of their equity in order to get a second (sweeter) “bite of the apple” and defer taxes. Buyers often insist that Sellers roll in order to “align interests” and ensure that Sellers have “skin in the game,” as well as to reduce cash outlays at Closing.
Below in chart form is an overview of certain key factors Sellers should consider when deciding whether to participate in an equity roll.
Equity rolls can be a powerful and valuable tool for Sellers in M&A transactions, potentially aligning interests, deferring Seller’s taxes and providing a real opportunity to realize additional significant returns when the Buyer later sells the acquired company. Consequently, it is crucial for a Sellers to carefully consider all of their financial, strategic and personal goals in any decision to roll.
