The buyer is requiring us to roll over fifteen percent of our equity, but we will have no operational control. How do we structure a mandatory put option that guarantees our ability to exit this minority position at a fair valuation in the future?

Question

Tyler Smith · Accepted Answer

Rollover equity can easily become a total write-off if you do not secure a clear exit path. Once you step down and hand over the keys, the buyer can run the company without distributing cash or pursuing a sale, leaving your fifteen percent holding locked up indefinitely. To protect your capital, you must negotiate a mandatory put option in the unitholders agreement. This option grants you the unilateral right to force the company to buy back your rollover shares after a specified period, typically thirty-six to sixty months post-close. Do not let the buyer set an arbitrary price for this buyback. The put option must use a pre-determined, formulaic valuation method. The cleanest approach is to tie the buyout price to the same EBITDA multiple used in the initial transaction, applied to the company's trailing twelve months of EBITDA at the time you exercise the put. Ensure this buyback obligation is backed by corporate guarantees. If the company lacks the cash to redeem your shares when you exercise the put, the agreement must require them to secure senior financing or initiate a sale process of the entire business to fund your exit. This guarantees your rollover is a true investment, not a permanent hostage.