Seller Rolled Over Equity v. Seller Maintaining Minority Stake

February 15, 2025

by a professional from University of Virginia in Holmes, NY 12531, USA

Just thought I’d write this short note in case it benefits of any of y’all - it’s an item I’ve seen folks confuse before and it just crossed my desk again today.

The idea of a seller rolling over equity and a seller maintaining a minority interest are NOT the same concept.

In the former, most typically, seller sells 100% interest and in lieu of cash proceeds, reinvests a certain % into (usually) buyer’s new holdco. Common in PE deals.

In the later, the seller is only selling a portion (most) of the equity interest and most typically ends up a minority shareholder in the target operating company.

Different incentives, different tax treatment, different liquidity considerations, possibly different “amount of control” considerations, etc.

When modeling deal structures, if you’re buying e.g. 90% equity, don’t list the remaining 10% as a source of deal funding.

Nothing profound but always glad to discuss!

Reply by a professional
from University of Virginia in Holmes, NY 12531, USA

Thanks ^redacted‌ above. In re: liquidity, my thinking there is more along the lines that in a *typical* rollover in a PE deal, the rolling seller is pretty much on the PE shops' exit timeline. Most of the time, a seller that's selling a huge majority stake and staying in as a minority isn't likely to have attractive near-term liquidity options either, but perhaps an iota more flexibility in selling the minority interest a bit earlier - provided the deal documentation permits it.

Reply by a professional
from University of Michigan in Detroit, MI, USA

^redacted‌, generally speaking, a traditional rollover is better from a liability and tax perspective. Until recently, the SBA wouldn't permit a traditional rollover, which is why many were referring to transactions where a seller retained equity as a "rollover." Good points ^redacted‌. Worth clarifying now that the SOPs have changed.

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