What is 'rollover equity' and when does it appear in the S&U table?
Rollover equity is equity that the existing seller (often management or the founding family) does NOT take out in cash, but keeps as a stake in the NewCo.
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The founding family of Industrial Manufacturing Co receives a $285m equity purchase price on the sale. They roll $30m (10.5%) into the NewCo:
| S&U item | Treatment |
|---|---|
| Sources: rollover equity | $30m (no cash effect, a notional Sources item) |
| Uses: equity purchase price | $285m gross |
| Uses: cash payment to sellers | $255m (= 285 − 30 rollover) |
The sponsor's equity need falls by the rollover amount — with Total Uses $354m, $200m debt, $15m cash: Sponsor Equity = 354 − 200 − 15 − 30 = $109m (instead of $139m without rollover).
Rollover equity is very common in middle-market family-owned buyouts (60–70% of them) and signals to the market 'the seller believes in the future'. From the sponsor's view: a strong alliance with the operating family, but more complex governance setups (family veto, drag-along rights).