The private equity buyer wants us to roll over ten percent of our equity into their holding company, but their platform is valued at a much higher multiple than they are offering us. How do we negotiate a valuation parity clause so our rolled equity is valued on the same basis as theirs?

Question

Tyler Smith · Accepted Answer

This valuation mismatch is a common private equity tactic. The buyer will value your company at a six-times multiple, but value their platform company at a twelve-times multiple when calculating how many units you receive in the rollover. This immediately dilutes the value of your rolled equity by half.

To prevent this, you must negotiate for valuation parity, often referred to as rolling over on a cash-equivalent basis.

First, demand that your rollover equity be priced using the exact same multiple and valuation methodology applied to the platform entity. If they are valuing their platform at twelve times EBITDA, your business must be valued at twelve times EBITDA for the portion of the purchase price that is being rolled over.

Second, if the buyer refuses parity, negotiate for a lower rollover percentage or demand a liquidation preference on your rolled units. This ensures you get paid your principal amount back before the private equity sponsor takes their profit during the next recapitalization.

Finally, use your EOS operating system to demonstrate that your business is not a minor add-on, but a core strategic asset. Show them how your leadership team and scalable workflows will help integrate future acquisitions, justifying a higher valuation for your contribution to the platform.