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Banker, not broker, needed to model PE rollover and earnouts

InvestmentNews column says the adviser a founder hires determines whether earnout and rollover terms get modeled before signing.

At a glance

  1. The specific terms are earnouts, equity rollover, governance rights, integration timelines and cultural fit.
  2. The column says earnouts tend to be more complex in PE deals, and rollover gets the most attention because the seller takes platform equity whose value depends on the platform's growth, liquidity terms and governance rights.
  3. A founder rolling a large stake at an attractive multiple may be concentrating wealth in a single private company with limited exit options.

A founder deciding whether to sell to a private-equity buyer should hire an investment banker rather than a business broker to model rollover and earnout terms, an InvestmentNews column argued on Oct. 23.

The column says a banker working regularly with PE buyers can compare a PE bid with a strategic offer, model the rollover and negotiate earnouts; a business broker is unlikely to do all three.

The specific terms are earnouts, equity rollover, governance rights, integration timelines and cultural fit. The column says earnouts tend to be more complex in PE deals, and rollover gets the most attention because the seller takes platform equity whose value depends on the platform's growth, liquidity terms and governance rights.

A founder rolling a large stake at an attractive multiple may be concentrating wealth in a single private company with limited exit options. The column does not pick PE over a strategic buyer, saying either can fit depending on cultural and integration priorities.

Reported by the Succession & selling a firm desk from InvestmentNews. Published . Corrections

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