The private equity buyer is requiring us to roll over twenty percent of our equity into their new platform, but we will have zero control post-transaction. How do we protect the value of our rollover equity from dilution and mismanagement?

Question

Tyler Smith · Accepted Answer

Private equity buyers often require sellers to roll over fifteen to thirty percent of their transaction proceeds into the buyer's new acquisition platform. While this offers a second bite of the apple when the platform eventually sells, it carries significant risk because you will be a minority shareholder with no operational control. To protect your rollover equity, you must negotiate strict protective provisions.

First, secure strong tag-along and drag-along rights. Tag-along rights ensure that if the majority private equity owner sells their shares, you have the right to join the transaction and sell your rollover equity on the exact same terms. This prevents you from being locked into a company with a new owner you did not choose.

Second, negotiate anti-dilution protection. This prevents the private equity sponsor from issuing new classes of shares or taking on dilutive debt that reduces the percentage or value of your equity without your consent.

Third, demand veto rights over key corporate decisions, such as changing the core business model, taking on excessive leverage, or issuing preferred shares that rank ahead of your common equity.

Finally, keep an eye on operational alignment. Insist that the post-close entity maintains a structured operating system like EOS® to ensure the leadership team continues to run the business professionally. This operational discipline protects your remaining equity value by keeping the team focused on execution, ensuring that your rolled-over capital continues to grow.