Equity rollover

Definition

A seller reinvesting part of the proceeds as minority ownership.

Why It Matters

Rollover keeps the seller economically invested through the transition and reduces the cash a buyer has to raise, at the price of sharing future upside and some governance with the person you just bought from. Settle the minority rights before closing rather than after, because a seller with a blocking vote on decisions you were hired by your lender to make is a slow problem. Note the SBA takes a view on this: a seller keeping equity may not be able to walk away as cleanly as both sides assume.

In numbers: A seller rolling 20% of a $4M deal keeps $800k invested alongside you; that is $800k less to raise, and a seller with a reason to want year two to go well.