Rollover Equity in LOI - how to frame?

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March 22, 2024

by a searcher from Stanford University - Graduate School of Business in Los Angeles, CA, USA

Would be grateful if someone could share how to write about rollover equity in LOI for an asset sale. How exactly is it structured?

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Reply by a searcher
from Colorado State University in Centennial, CO, USA
I have been proposing this in a stock sale OR setting up a new entity with an APA and letting the seller retain up to 19% of the shares. I run a simple IRR calc and show them what some modest growth would do for their retained ownership over 5-7 years. For some, its meaningful and for others, it means nothing. Unfortunately our culture has been brainwashed into thinking that sending your money to your "financial advisor" so they can charge you a point every year and hope to beat the S&P is the way to go. It does, however, land for some sellers. It also helps lower your DSCR when its thin. Hopefully that helps?
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Reply by a searcher
from University of Virginia in Charlottesville, VA, USA
The Stanford Search Fund primer includes some sample legal docs, including an LOI. If I recall correctly, the sample LOI specifically lays out an example of how to structure an equity roll. I have tweaked that template in a few of my LOIs that include equity rolls.

https://www.gsb.stanford.edu/experience/about/centers-institutes/ces/research/search-funds/primer
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