The buyer wants our leadership team to take a ten percent rollover equity incentive pool, but expects it carved out of our purchase price. How should we structure this?

Question

Tyler Smith · Accepted Answer

Buyers love telling founders that leadership team members need skin in the game, and then quietly attempting to fund that incentive pool out of the seller's closing proceeds. This is a disguised purchase price reduction. You are effectively paying your own team on the buyer's behalf to ensure the buyer's future investment succeeds.

You must push back against this dynamic immediately at the LOI stage. Post-closing management retention and long-term equity incentives are capital expenditures for the buyer's future platform, not historical liabilities of the selling founder.

Firmly establish that any management equity pool created for ongoing operations must come out of the buyer's post-closing capitalization structure, diluting the buyer alongside any rollover equity, not carved out of your gross enterprise value. If the buyer wants your team to hold ten percent of the new entity, they should issue new incentive units or options that vest over three to four years based on post-acquisition milestones.

If you want to reward key leaders who helped you build the business to this exit, handle that independently. Implement a discrete transaction bonus plan from your own proceeds, completely separate from the buyer's ongoing equity structure. Do not allow the buyer to conflate your appreciation for past loyalty with their obligation to properly incentivize your leadership team for future performance.