Rollover equity

Rollover equity is when the target’s shareholders roll a portion of their ownership stake over into the new equity capital structure put in place by the acquiring PE firm in lieu of receiving cash proceeds. Instead of paying cash for the shares, the PE firm issues shares. This allows the PE firm to conserve cash and gives the shareholders incentive to ensure the company is doing well postacquisition. The rollover equity is a component of the purchase consideration. Potential valuation issues arise when the class of stock given to the target’s shareholders is not the same as the PE firm.