Rollover equity / 'second bite of the apple' structure when selling to PE

An M&A advisor explains that in sales to a private equity firm, the seller often sells 80% and rolls 20% equity into the PE firm's holding company, expecting that stake to be worth 3-5x at the next sale.

“The final piece is what's called rollover equity. And this is particularly if you're selling to a private equity firm, firm, the seller might sell 80 % of the business. He might continue to own 20 % of the business. He might roll that 20 % equity over to the holding company that the private equity firm is forming.”

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