I am looking at a deal where the purchase price may be a little "rich." If I incorporate rollover equity, I think this will help de-risk the transaction since I can either invest less or borrow less. But how much equity does the seller own post-close?
E.g., assume a $100 purchase price where I borrow $80 through an SBA loan, the seller contributes $10 of rollover equity, and I contribute the remaining $10 (ignoring deal fees, working capital, etc.). Does the seller own 10% of the company going forward? 50%? Something else/negotiable? I assume since I'd be guaranteeing the debt (SBA loan), 10% is the right number but I don't know if that's the right way to think about it. Does your answer change if I'm not a personal guarantor?
One last question: can you use rollover equity in an asset deal financed with an SBA loan?
Thanks so much.
What percentage of the company does a seller get when they rollover equity?
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SBA is considering changes to seller rollover. None of the many potential changes I have heard of, will, imo, allow useful seller rollover from buyer=perspective.
You can have the seller retain any portion that they want. There currently is some confusion with the new rules that we are waiting on the SBA to clarify, but the way it appears it will work is that if the seller retains under 20% of the company they will not need to sign a personal guarantee. If they retain 20% or more of the company, the seller would need to sign a personal guarantee as well. However, there is some conflicting language in the SBA standard operating procedure that has some believing the seller would need to guarantee even if their ownership interest is under 20%. That is the language we are waiting to have clarified. Hopefully that clarification will come out any day now. Please let me know if you have any additional questions here or directly at --@----.com