The Back-of-the-Napkin Math
In the first part of our two-part series, The Second Bite of the Apple, we explored why rollover equity creates winning outcomes for both buyers and sellers. Now let’s look at how the numbers actually work.
Consider this example of rollover equity math in action:
A business generating $10 million in EBITDA. Subject to firm performance, industry, and size, let’s say a multiple of 5 is appropriate. A 70% stake is sold — that’s $7 million of EBITDA at a multiple of 5, or $35 million, with a 50/50 acquisition capital structure of debt and equity.
After five years of growth, EBITDA has reached $20 million. As part of a larger company, it is sold at a multiple of 7, or $140 million. The net pre-tax proceeds on the 30% rollover equity stake? $42 million.
This is a plausible but deliberately simplified example — we’re ignoring cash flow, depreciation, capital expenditures, net working capital, and a number of other factors. The exact numbers would depend on circumstances specific to the business. However, this should provide a basic understanding of the concept and why it is important and beneficial.
The key insight: the seller benefits from both the EBITDA growth (from $10M to $20M) and the multiple expansion (from 5x to 7x). This dual upside is what makes rollover equity such a powerful wealth-creation tool.
It’s worth noting that our example is conservative. According to GF Data’s Q3 2025 M&A Report, larger platforms ($100M–$500M TEV) are commanding 9.8x EBITDA while smaller platforms (sub-$100M) trade at 7.0x — a spread of nearly three full turns. In the right circumstances, the second bite can be even larger than illustrated here.
Understanding the Timeline
The typical time frame for the sale of rollover equity in a private equity leveraged buyout (LBO) is generally between three to seven years, though most often it is modeled at five years. The seller’s rollover equity often becomes fully owned and salable during this period, subject to specific vesting schedules and exit events.
It’s worth noting that median holding periods for private equity investments have been increasing, with recent data showing averages closer to 5.8 to 6.6 years — a shift from the traditional three-to-five-year playbook. This means management may have to wait longer for their “second bite of the apple.”
Structuring for Success
Rollover equity reduces risk for private equity (PE) buyers primarily by aligning the financial interests of the seller with those of the buyer. The percentage of rollover typically ranges from 20% to 40% of total consideration, depending on buyer requirements and seller preferences. Tax implications must be carefully considered — though rollover equity can often be structured on a tax-deferred basis.
Most importantly, sellers must conduct thorough due diligence on the acquiring entity. Rolling equity means becoming a minority partner with sophisticated investors. Understanding the capital structure, governance rights, and realistic exit timeline is essential. Just as a Quality of Earnings report de-risks the transaction, rollover equity signals alignment — and buyers pay for alignment.
If an owner is thinking about selling in the future, the time to start actively investigating the process is now.
Consider the timeline: the first sale may take up to a year, the second sale may take up to a year, and add the five-year growth period in between. That’s why it’s reasonable to start looking into an exit six to seven years ahead of the target timeframe. Waiting until 60 or 65 is late.
The REAG Perspective
At REAG, we understand that every founder’s journey is deeply personal. Rollover equity structures can deliver extraordinary outcomes — but only when thoughtfully planned.
The business owners who maximize rollover equity outcomes are those who start planning early—building the operational strength, management team, and financial clarity that give buyers confidence and drive premium valuations. Rollover equity isn’t a compromise. It’s a wealth-creation strategy. And like any strategy, it rewards preparation.
Working with an experienced investment banking team ensures that all aspects of deal structure are optimized for your goals. The best time to start that conversation is now.
Contact REAG today to discuss how you can protect and grow the value you’ve built without compromising the culture and relationships that matter most.
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If you are a Founder or Business Owner, visit our Business Owner Portal.
Certified Exit Planning Advisors (CEPAs) working with their business owner clients are encouraged to engage early with REAG to ensure optimal outcomes. Our CEPA Portal has advanced resources, serving as your gateway to empower successful transitions.
Essential Resources:
Year-End Reviews – Strategic year-end assessments that evaluate business performance, identify value drivers and growth opportunities, and set actionable goals for the coming year while assessing exit readiness
What Does An Exit Really Mean? – Strategic exits go beyond simple sales to maximize wealth and secure legacy
Investment Banking vs Business Brokerage: Why Expertise Matters in Crisis – Why choosing the right advisor determines survival and thriving during disruption
