Carry Structure for SPV / Holdco with Callable Equity Commitments

June 24, 2025

by an investor in New York, NY, USA

We're looking an aggressive industry consolidation opportunity that will include significant upfront seller rollovers from multiple companies, alongside a long tail of committed equity capital that will be deployed over time. Are there ways to structure carried interest language to avoid being diluted by equity rollover from sellers? We want to invite sellers to rollover equity value at the same terms and conditions as new investors in this entity. If that rollover is ultimately dilutive to sponsor economics, we will push them to roll less and replace that need with investor dollars -- which ends up being an unintended consequence of aligning the sellers to the new platform. Any preliminary recommendations from the legal community would be appreciated. Would an SPV fund structure with typical PE fund language, with each underlying company structured as an individual opco (with prorata ownership split between fund + seller rollover at opco level) + a centralized management services entity make the most sense? Presumably this avoids dilution of carry from rollovers, but probably opens up a world of other governance pitfalls & issues. I'm sure I am missing an easy solution...

Reply by an investor
from Dartmouth College in 80 S Main St, Hanover, NH 03755, USA

Two ideas. 1) less conventionally (I think as a sponsor, maybe more so as a manager/ceo) You could try to start with a preferred and common or a/b structure where (per the above comment) all equity promotes your incentive ownership - particularly if you are managing the holdco and can call your ownership a holdco management incentive and not “sponsor carry”, but if it’s more than 10%-15% you may struggle to sell this concept. You may want to have a/b shares anyway though to differentiate governance rights between sponsor equity and rolled in equity in the aggregate — ie maintain control. Alternatively, initial equity value can be preserved (dilution managed) by over equitizing the first few deals to get your investor equity fully in early (but rollover during that period will be somewhat dilutive to overall ownership) - this makes sense as those early dollars are the riskiest in the life of your deal. And then revaluing the stock of the company six months or a year in, but whatever the timeframe - once you have achieved some larger step function scale so that subsequent rollover comes in at a higher per share value (minimizing dilution to your initial equity position ). That approach is fairly conventional, but will also make it more “expensive” for you/your investors to add equity following the revaluation or to bring in new investors after your initial group. If using this approach just make sure your investors are aligned with the approach, and you may need to engage third party valuation support to validate the revaluation (I would encourage intellectual honesty on this front to avoid conflicts, but as a. Example if you are buying $1m ebitda businesses at 3x into a platform you’ve built to $15m of ebitda (via 15 $1m ebitda acquisitions), certainly the platform should be valued at a substantially higher multiple at that scale vs the 3x of the component acquisitions.

Reply by a professional
from Northwestern University in Chicago, IL, USA

Are you planning to take carry from the sellers or only from the investors? In either case, you can address the dilution issue by setting up an SPV (e.g., an LLC or LP) with an investor-by-investor distribution waterfall. This allows the carry to be calculated separately for each investor, so any rollover equity from sellers would not dilute the sponsor’s carry on the capital committed by traditional LPs. This is a common approach in the PE fund world, but it's mostly used to address carry/fee discounts or sometimes investors that do not want to participate in every deal. Happy to chat about at redacted

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