In the emerging middle market, over ⅓ of all deals included rollover equity according to Alliance of M&A Advisors' latest market study.

We commonly see buyers and sellers making mistakes with rollover valuation.

The place to begin is with the dollar value of that equity.

Assume you're buying a company for a purchase price of $50M (cash-free, debt-free) and offering a 10% rollover. You're offering $5M in rollover, right? Maybe, if it's a flat 10% of the purchase price but not if it's 10% of the buyer's proceeds.

$50M is the total enterprise value of your company, its equity and debt added together. To find out how much the rollover (equity) is worth, you're looking for equity value exclusive of debt.

So, if your company has $10M in debt, the equity value is $40M ($50M in TEV - $10M in debt), and the rollover would be valued at $4M.

This is no different than if you were paid in all cash, where all debt would typically be paid out of the purchase price before the balance of the proceeds devolves to the owners.