The private equity buyer wants us to roll over twenty percent of our equity into their new platform entity, but we are worried about being diluted or locked in indefinitely. How do we structure our rollover equity to protect our minority interest?

Question

Tyler Smith · Accepted Answer

Rollover equity is often pitched as a second bite of the apple, but without strict legal protections, it can easily turn into zero. When you roll over equity, you are transitioning from being the majority decision-maker to a minority shareholder with no control.

To protect your minority stake, you must negotiate critical governance and economic rights before signing the purchase agreement. Demand tag-along rights, which guarantee that if the majority owner sells their stake, you have the right to sell your shares on the exact same terms. Insist on anti-dilution provisions to prevent the sponsor from issuing new cheap shares that shrink your percentage. Finally, ensure your equity rollover is in the same class of security as the private equity sponsor, or negotiate a preferred return that gets paid out before the common equity holders receive a dime. Use your EOS transition plan to remain aligned on the platform's vision, but protect your capital with hard legal terms. Do not trust their projections; verify that your rights are contractually locked in.