Rollover Equity in LOI - how to frame?

March 22, 2024

by a searcher from Stanford University - Graduate School of Business in Los Angeles, CA, USA

Would be grateful if someone could share how to write about rollover equity in LOI for an asset sale. How exactly is it structured?

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Reply by a professional
from University of Notre Dame in New York, NY, USA

Technically equity isn’t rolling over in an asset sale. You’re acquiring presumably 100% of the assets for the purchase price and then you’d grant equity in the Buyer to the “rolling” shareholders of the target in whatever the “rollover amount” would be (usually through a tax-free contribution). Happy to discuss in more detail - shoot me a DM or email redacted Good luck.

Reply by a searcher
from Colorado State University in Centennial, CO, USA

I have been proposing this in a stock sale OR setting up a new entity with an APA and letting the seller retain up to 19% of the shares. I run a simple IRR calc and show them what some modest growth would do for their retained ownership over 5-7 years. For some, its meaningful and for others, it means nothing. Unfortunately our culture has been brainwashed into thinking that sending your money to your "financial advisor" so they can charge you a point every year and hope to beat the S&P is the way to go. It does, however, land for some sellers. It also helps lower your DSCR when its thin. Hopefully that helps?

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