The buyer wants us to roll over 20 percent of our equity but is refusing to provide a drag-along right that forces them to pay us out when they sell the company. How do we negotiate our rollover terms to ensure we are not left holding illiquid minority shares forever?

Question

Tyler Smith · Accepted Answer

Rolling over twenty percent of your equity without protective provisions is a massive risk. If the buyer has no obligation to drag you along or buy you out, they can structure a future sale that leaves your minority shares behind, or dilute your holding to zero.

You must insist on robust shareholder rights to protect your rollover equity:
- A reciprocal drag-along right that ensures if the majority owner sells the company, you have the right to participate in that sale on the exact same terms, conditions, and valuation.
- Tag-along rights to guarantee that if the majority owner sells even a portion of their stake, you have the right to join the transaction and sell a proportional amount of your equity.
- A put option that grants you the right to force the company to buy back your shares at a fair market value after a specified period, typically five years.

This ensures you have an exit off-ramp if the buyer decides to hold the asset indefinitely. If they refuse these basic protections, reduce your rollover percentage to zero and demand cash at close.