The private equity buyer is requiring us to roll over twenty percent of our proceeds into their platform, but they have a history of high executive turnover. How do we use the Accountability Chart and governance rights to protect our minority rollover equity from being diluted or mismanaged?

Question

Tyler Smith · Accepted Answer

Rolling over equity into a private equity platform is often promoted as a second bite of the apple, but without strong governance rights, your minority shares can easily be diluted to zero. If the sponsor mismanages the platform or experiences high executive turnover, your rolled equity is at serious risk. To protect your investment, you must negotiate clear protective provisions and operational oversight before signing the definitive agreement. Start by demanding a seat on the board of directors or at least observer rights, giving you direct visibility into their strategic decisions. You must also negotiate veto rights over critical actions, such as the issuance of new equity that could dilute your shares, taking on excessive debt, or changing the core business model. Use the Accountability Chart framework to analyze their platform's operational efficiency. Ensure that the roles and responsibilities of the platform's leadership team are clearly defined and that they have the GWC™ for their seats. If the platform lacks operational structure, your rolled equity is funding a chaotic operation. Additionally, negotiate tag-along and drag-along rights. Tag-along rights ensure that if the private equity sponsor sells their stake, you have the right to sell your minority shares on the exact same terms. Finally, insist on a put option that allows you to force the buyer to repurchase your rollover equity at a fair market value under IVS 105 if certain operational performance metrics are not met within a set timeframe.