Rollover Equity

professional profile

June 04, 2024

by a professional from Duke University in Windermere, FL 34786, USA

Big mistake I see business buyers making:

Don't assume that getting the seller to roll equity under the SBA's new partial buyout rules means they'll necessarily be motivated to help post-closing.

They also might make a terrible partner that you quickly want to get rid of!

We closed ~$700 million in SBA 7(a) last year with zero partial rollover. Now everyone wants the seller to roll.

It should be saved for limited circumstances, tied to an employment agreement.

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commentor profile
Reply by a searcher
from The University of North Carolina at Chapel Hill in Atlanta, GA, USA
My background is larger deals (although still LMM). Typically the owners have done a great job of building the business and maintaining relationships with both customers and employees. In that scenario, having an owner roll equity is incredibly valuable. However, if it is a business in need of some love, I can see why 100% buyout makes sense.
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Reply by an intermediary
from University of South Carolina in Florence, SC, USA
Agreed. Motivation often goes out the window with the expectation that it is the new owner's responsibility to drive the train. The buyer thinks they have the seller engaged because they have "skin in the game". The seller is thinking more of the same
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