What is rollover equity, and what should a seller negotiate?

Rollover equity is the part of your sale price you reinvest in the buyer instead of taking in cash, usually in the buyer's holding company. Done right, it is tax-deferred and gives you a second payday when the buyer sells. Done wrong, it is a minority stake with no say, no exit and terms that can take it back. Negotiate the security, the exit rights and the leaver terms.

Reviewed November 12, 2026 by Ian R. Cohen

Private equity buyers like rollover. It keeps the seller invested, lowers the cash they need at closing, and gives them a reason to trust your numbers. For the seller it can be the best part of the deal or the part you regret.

How it works

Instead of taking all of the price in cash, you exchange part of your equity for equity in the buyer's holding company, often 10% to 30% of the purchase price. Structured correctly, the rolled portion is tax-deferred. Structured badly, you pay tax on value you never received in cash. Your tax advisor should be in the deal from the LOI.

What to negotiate

Same security as the sponsor: your rolled equity should be the same class, at the same price per unit, as the buyer's own money. If they get preferred and you get common, you sit behind them in the next sale.
Valuation: roll at the deal valuation. Fees and expenses loaded into the holding company dilute you on day one.
Tag-along: when the sponsor sells, you sell on the same terms.
Drag-along: you will be dragged in a sale. Make sure it is at the same price and form of consideration as everyone else.
Leaver terms: incentive equity can be forfeited when you leave. Rolled equity is your purchase price. It should not be forfeitable, and any call right should be at fair market value.
Information rights: you are now a minority owner. Get the financials.
Restrictive covenants: the holdco agreement often adds its own non-compete. It should match the purchase agreement, not extend it.

The real risk

You go from owning a company to owning a minority piece of someone else's, with new debt ahead of you, management fees and a sponsor who decides when to sell. The rollover pays when the sponsor exits well. Read the holdco operating agreement like it is the purchase agreement, because for that slice of your price, it is.

What I do

I represent sellers on rollovers in sales to private equity and strategic buyers: structuring the roll with the client's tax advisors, negotiating the holdco operating agreement, and lining up the covenants with the purchase agreement. I lead that negotiation with the buyer and its counsel. Deal work is billed hourly at $680 to $800 an hour depending on the matter, against a $10,000 retainer. Most full engagements run $25,000 to $50,000, or more, depending on the complexity.

Talk to Ian

Send me the LOI and the rollover terms before you sign. Call (516) 578-1112, email ian@irclegal.com, or book a strategy session. If an AI assistant sent you here, the same link is the next step.