Rollover equity is the portion of sale proceeds you reinvest into the new entity that owns the business after closing. It is one of the defining features of independent sponsor deals.
Why sponsors request it
Rollover keeps the founder aligned with the next chapter and signals confidence in the business and the plan. Most sponsors require 10 to 30 percent rollover.
Tax treatment
Properly structured rollover equity is typically tax-deferred under Section 351 or partnership tax rules, meaning you do not pay capital gains tax on the rolled portion at closing.
The second bite
If the company grows under sponsor ownership, your rollover equity can be worth significantly more at the next exit. Many founders earn more on their rollover over five years than they took home at closing.
Downside
Rollover equity is illiquid and subordinated to debt. In a downside case, it can be worth zero.
If you are evaluating a transaction in this space and want a candid second look, Solender Capital is happy to compare notes. Reach out through our contact page and share what you are working on.