Rollover equity is the part of your sale proceeds you reinvest into the buyer, rather than take as cash, ending up with shares in the business going forward instead of the money in your bank account.
Technically, it is consideration paid in shares of the acquiring entity or a holding company rather than in cash, typically used where the buyer wants the seller financially aligned with the business after completion. It may be tax-deferred where structured correctly under the scrip-for-scrip rollover provisions.
Buyers, particularly private equity buyers, want rollover equity because it keeps the founder motivated and reduces the cash they need to fund upfront. Sellers should treat it as a fresh investment decision, not simply a form of price, because it means real ongoing risk on how the buyer runs the business and how or when you can eventually exit that stake.
The headline percentage matters less than the terms attached to it. Minority shareholders in someone else’s holding company have limited say over major decisions, and the value of rollover equity is only ever as good as your ability to eventually sell it.
What you as a seller should push back on: rollover equity with no defined exit mechanism or timeline, minority protections that leave you unable to influence decisions materially affecting the value of your stake, and being pushed into rollover as a way to bridge a valuation gap the buyer should simply be paying in cash.