Rollover equity generally means that a seller leaves some transaction value invested in the continuing business instead of receiving that amount in cash at closing. The retained interest may give you a chance to share in future value, but its stated percentage does not tell you what it will be worth or how much control it carries. You may own a minority interest in a company whose decisions are made by the buyer.
Ask what security you will receive and how its entry value was calculated. Is it common equity, preferred equity, or another instrument? What voting, reporting, inspection, and distribution rights come with it? Can the buyer issue new shares, add debt, change the capital structure, or sell assets without your approval? Ask whether you can be required to contribute more money and what happens if you cannot. Review transfer limits, buyback rights, drag along provisions, and the events that allow a sale or other exit.
Understand how the retained interest sits in the capital structure. If the company has debt or preferred claims ahead of your equity, ask how those claims affect proceeds in different outcomes. Request written examples that show your proceeds if the company is sold at a lower value, sold at a higher value, or does not sell. Also model what happens if more equity is issued or if the business needs new capital. Use clear hypothetical assumptions and have a qualified valuation professional check the calculations.
Consider concentration and control. You may be tying a portion of your sale proceeds to the same firm whose leadership and strategy will change after closing. Ask your attorney to explain how employment terms, restrictive covenants where lawful, and a future departure could affect your equity. Ask your CPA about tax timing and basis before agreeing to reinvest.
Treat projected returns as uncertain, and compare the retained interest with the cash you would receive under other structures.
This is general education, not legal, tax, investment, or engineering advice; licensed PE judgment and local codes govern.
