We are comparing an offer from a strategic buyer offering ninety percent cash at close with one from a private equity firm requiring a twenty-five percent rollover equity stake. How do we evaluate these structures to determine the true risk-adjusted value of our exit?

Question

Tyler Smith · Accepted Answer

Choosing between a high-cash strategic offer and a rollover-heavy private equity offer requires looking past the headline purchase price to evaluate the actual risk and structure of the deal. Strategic buyers typically buy you out completely because they want to integrate your operations to capture cost-saving synergies. This usually results in more cash at close, but it often means your brand, team, and operating system are dismantled.

A private equity sponsor, on the other hand, wants to use your business as a platform for future acquisitions. They will ask you to roll fifteen to twenty-five percent of your equity into their new entity. While this reduces your immediate liquidity, it gives you a second bite at the apple when they exit in three to five years.

To evaluate this, run the numbers on their capital structure. Ask how much debt they are loading onto the business, as high debt service can restrict the company's ability to grow. Align their growth plans with your V/TO to ensure their vision matches your team's capabilities. If you believe in the platform's potential and want to remain involved in scaling the company, the rollover structure can yield a massive second payout. If you want a clean break, take the strategic cash.