What does equity rollover mean when selling to private equity?

Equity rollover means reinvesting part of your sale proceeds into ownership of the new private-equity-backed company instead of cashing out completely. In a typical deal you take most of the value as cash at close, since PE deals are usually 60-80% cash, and 'roll' the remainder, commonly 10%-40%, into equity of the buyer's holding company.

Rollover serves two purposes: it keeps you financially aligned with the buyer, so you both win if the business performs, and it gives you a 'second bite of the apple,' a chance to earn again when the firm sells the company, typically in about 3-7 years. A properly structured rollover can often be tax-deferred on the rolled portion until you eventually sell that equity, while the cash you receive at close is taxed in the year of sale.

The upside is real, and in a successful roll-up the second payout can rival or exceed your initial check, but so is the risk. Rolled equity is usually a minority stake, it is illiquid until the platform sells, and its value depends on the firm's execution. Review the equity class, governance rights, and exit terms carefully.

Because the cash portion is taxable (federal long-term capital gains generally run about 15-20%, plus state tax, and an additional 3.8% net investment income tax may apply to higher earners, though that surtax generally does not apply to gain from a business you materially participate in), structure has a big after-tax impact. DealSeam is not a traditional business broker and does not give tax advice; work with a deal attorney and tax advisor on the rollover terms.