We are comparing two offers one is lower but offers eighty percent cash at close while the other has a higher enterprise value but requires a thirty percent rollover into a private equity roll up. How do we evaluate these deal structures?

Question

Tyler Smith · Accepted Answer

Evaluating these two structures requires you to look past the headline enterprise value and assess the true risk of the rollover equity. Private equity buyers use rollover equity to reduce their cash outlay and force you to keep skin in the game. That thirty percent rollover is not guaranteed cash. It is a bet on the sponsor's ability to execute a successful exit down the road.

To analyze the rollover offer, you must run due diligence on the private equity firm itself. Review their track record with previous roll-ups. Ask tough questions about their capital structure, their leverage ratios, and how they protect minority shareholders from dilution during subsequent funding rounds.

Next, evaluate the alignment of your leadership team. If you accept the rollover, your team will be executing under a new parent company. Use your V/TO® to see if your three-year picture aligns with the private equity sponsor's investment horizon. If their operational philosophy is chaotic, your rollover value could easily be wiped out.

Compare this risk against the lower, high-cash offer. Eighty percent cash at close gives you immediate liquidity and removes all operational risk. If the rollover equity has high dilution risk or is managed by a sponsor with a weak track record, the lower-priced cash offer is often the superior deal.