The private equity buyer wants us to roll over twenty percent of our equity into their new platform. How do we assess the real value of this second bite of the apple and protect our governance rights so we are not wiped out by future dilution?

Question

Tyler Smith · Accepted Answer

Rollover equity is often pitched as a lucrative opportunity for a second bite of the apple, but without proper protections, it can easily be diluted to zero. Private equity buyers use rollover equity to reduce the cash they need at close and to keep you personally aligned with their goals.

To assess the true value, you must run a rigorous diagnostic on their platform. Ask for historical performance data, their leverage ratios, and their specific exit timeline. More importantly, you must negotiate your governance and economic rights in the new entity.

Do not accept standard common units. Demand class A units or preferred equity that carries a liquidation preference and a cumulative dividend. This ensures you get paid before the common equity holders in a sale.

You must also negotiate veto rights on major decisions, such as taking on excessive debt or issuing dilutive shares, and secure tag-along rights so you can exit when they do. Use your Accountability Chart™ to define exactly who will hold the seats in the new entity. If you do not have a say in how the platform is run, your rollover equity is simply a highly speculative bet. Treat it as zero-value unless you have the legal covenants to protect it.