A strategic buyer wants us to accept a portion of the purchase price in their privately-held stock, but we cannot assess its real value. How do we audit their operating system and corporate governance to determine if this equity rollover is a real wealth-building tool or just paper money?

Question

Tyler Smith · Accepted Answer

Accepting rollover equity in a privately-held strategic buyer is often pitched as a second bite of the apple, but without transparency, it can easily end up worthless. You are being asked to exchange your cash for minority shares in a company where you have zero operational control.

Before you accept this structure, you must perform operational due diligence on the buyer. Start by asking how they run their business day-to-day. A company that runs on a structured operating system like EOS is far more likely to hit its growth projections than one managed by founder whim.

Review their strategic vision and three-year picture. Request to see their historical performance metrics and how they hold their own leadership team accountable. If they cannot produce a clear strategic plan or a consistent tracking scorecard, their private stock is a highly speculative bet.

Additionally, review their corporate governance documents to understand your rights as a minority shareholder. Look for drag-along and tag-along rights, and clarify how and when you can liquidate your shares. If the buyer does not have a clear path to a liquidity event within three to five years, your rollover equity is likely just paper money.

Treat this rollover as an investment. If their operating system and governance do not meet your standards, push back and negotiate for a higher percentage of cash at close or a secured seller note.