Rollover Equity Explained: A Florida Seller's Guide to PE Deals (2026)

If a private equity firm makes an offer on your Florida business in 2026, there is a very good chance the letter of intent will not be all cash. Somewhere in the second paragraph you will see a line asking you to "roll" 20% to 40% of your proceeds into equity in the new company. Most owners read that line as a discount on their price. Some read it as a lottery ticket. Neither is right. Rollover equity is a structured bet on the buyer's plan, with its own tax treatment, legal rights, and risks, and it is now standard in nearly every PE deal for companies doing $3M to $50M in revenue in Tampa, Orlando, Jacksonville, Miami, and across the state. Before you agree to roll a dollar, you should understand exactly what you are buying. ## What Rollover Equity Actually Is Rollover equity means you take part of your sale price as ownership in the buyer's new holding company instead of cash at closing. If your business sells for $20 million and you roll 30%, you walk away with roughly $14 million in cash (before debt payoff, fees, and taxes) and $6 million of equity in the new entity that now owns your company. That new entity is usually a holding company the PE firm creates for the deal, often called "NewCo" or "TopCo." It is capitalized with the fund's cash, debt from a lender, and your rolled equity. Your $6 million buys you a slice of that structure, typically a minority stake somewhere between 10% and 40% depending on how much leverage is used and how much you roll. Buyers ask for rollover for three reasons: - **Alignment** — If you own a piece of the future, you are more likely to stay engaged through the transition, keep key customers, and help the new team succeed. - **Reduced cash at close** — Every dollar you roll is a dollar the fund does not have to raise or borrow. - **Diligence signal** — An owner willing to roll is telling the buyer the business is as healthy as the financials say. An owner who refuses to roll anything raises a quiet question. ## Why Rollover Can Be the Best Money You Ever Make The case for rolling is the so-called "second bite of the apple." PE firms typically plan to hold a company for four to seven years, grow it through operational improvements and add-on acquisitions, and then sell it to a larger fund or strategic buyer at a higher multiple. Here is how that math can work. Suppose the fund buys your HVAC company at 6x EBITDA, then acquires three smaller Florida HVAC and plumbing shops at 4x to 5x. The combined platform is now larger, more diversified, and less dependent on any one owner, so it may sell at 9x or 10x to the next buyer. Because the platform also used debt, equity value can grow much faster than EBITDA. A rolled stake of $6 million can become $12 million to $18 million at exit if the plan works. That is not a promise. It is the upside case, and it is the reason sellers in fragmented Florida industries such as home services, healthcare, insurance, and specialty contracting increasingly see rollover as an opportunity rather than a concession. ## The Risks Most Sellers Underestimate The same leverage that magnifies the upside magnifies the downside. Your rolled equity sits behind the lender. If the platform misses its numbers, a bank covenant breach can wipe out equity value before you ever see a dime. A few specific risks deserve hard attention: - **No control** — You will almost always be a minority holder. The fund decides when to sell, whether to raise more capital, and how to spend money. - **Dilution** — Add-on acquisitions are often funded with new equity. If you do not have the right to participate, your percentage shrinks. - **Different classes of stock** — The fund may hold preferred units that get paid back first, with a preferred return, before common units see anything. If your rollover is in a junior class, a "good" exit can still leave you with little. - **Illiquidity** — You cannot sell your stake on your own schedule. Five to seven years is normal, and holds sometimes stretch longer. - **Concentration** — For many Florida owners aged 55 to 65, the business is already most of their net worth. Rolling 40% keeps a large share of that risk in one asset. The right question is not "Should I roll?" It is "How much of my net worth am I willing to leave tied to someone else's plan, and on what terms?" ## How Much Should You Roll? Typical Ranges and Tradeoffs There is no single right number, but market practice falls into a recognizable range. The table below is a general guide for lower middle market deals, not a quote for any specific transaction.

Rollover %	Typical Situation	Cash at Close (on $20M price)	Main Tradeoff
0%–10%	Owner retiring fully; strategic buyer; seller wants maximum liquidity	$18M–$20M	Fewer interested PE buyers; may weaken price or terms
15%–25%	Most common PE platform or add-on deal	$15M–$17M	Balanced liquidity and upside
30%–40%	Owner staying as CEO; buyer wants strong alignment	$12M–$14M	Large second-bite potential; high concentration risk
50%+	Majority recapitalization; owner keeps control or co-control	$10M or less	Seller remains the primary risk bearer

Before choosing a number, work backward from your personal financial goals. Decide how much after-tax cash you need at closing to be financially independent regardless of what happens next. Whatever is left over is what you can afford to put at risk. Owners who start from the buyer's requested percentage, rather than their own number, are the ones who end up uncomfortable three years in. ## Tax Treatment: Getting the Deferral Right Done correctly, rollover equity is generally tax-deferred. You do not pay capital gains tax on the rolled portion at closing; you pay it later, when you sell the new equity. Done incorrectly, you can owe tax on equity you cannot sell, which is the worst of both worlds. Deferral usually depends on how the deal is structured: - **Section 721 contributions** — When the new holding company is an LLC taxed as a partnership, you can often contribute part of your business into it in exchange for units on a tax-deferred basis. This is the most common structure in lower middle market PE deals. - **Section 351 exchanges** — When the holding company is a corporation, you and the other investors must together control at least 80% of it immediately after the exchange for the deferral to apply. Structuring around that test takes planning. - **Pre-closing reorganization** — S corporation owners often complete an F reorganization before closing so the buyer can get a step-up in asset basis while the seller still rolls equity tax efficiently. Florida helps here. Because the state has no personal income tax, a Florida resident generally owes only federal capital gains tax and the 3.8% net investment income tax where it applies, both on the cash at closing and later on the rollover. That makes Florida residency particularly valuable for an owner whose rollover may double or triple before the second sale. If you are considering a move to Florida or splitting time with another state, talk to your tax advisor before the LOI is signed, not after. None of this is tax advice for your situation. The structure has to be built by a transaction attorney and CPA who do this work regularly, and it has to be agreed in the LOI, because changing it during the purchase agreement stage is expensive and slow. ## Terms to Negotiate Before You Sign the LOI The percentage you roll matters less than the rights attached to it. These are the provisions that separate a fair rollover from a one-sided one: - **Same class as the fund** — Ask that your equity be in the same class and on the same terms as the fund's investment. If the fund gets preferred units with an 8% preferred return, your rollover should participate in that too. - **Valuation at the same price** — Your rollover should be priced at exactly the same per-unit value the fund pays. Watch for structures that price your units higher than theirs. - **Pre-emptive rights** — The right to invest more when new equity is issued, so add-on acquisitions do not dilute you without your consent. - **Tag-along rights** — If the fund sells its stake, you get to sell yours on the same terms. - **Information rights** — Quarterly financials and an annual budget, so you can see how the platform is performing. - **Board seat or observer seat** — Especially if your rollover is large or you are staying in an executive role. - **Repurchase terms** — If your employment ends, how is your equity valued and paid for? "Bad leaver" provisions that let the company buy you out at cost, or in a long-term note, can erase years of value. Narrow the definition of "cause." - **Drag-along limits** — The fund will want to force you to sell alongside it. That is standard, but the terms should guarantee you receive the same price per unit in the same form of consideration. A seller with multiple competing offers negotiates these points from strength. A seller talking to only one buyer usually accepts what is offered. ## How Rollover Changes the Way You Compare Offers Two offers with the same headline price can be worth very different amounts. A $22 million offer with a 40% rollover in junior common units, aggressive leaver terms, and heavy leverage may be worth less in real terms than a $20 million offer with a 15% rollover on equal footing with the fund. When CBH Business Group compares offers for a seller, we break every bid into its parts: cash at close, rollover value and terms, earnout or seller note, working capital target, escrow and indemnity exposure, and the employment agreement. Then we ask a simple question about the buyer itself: does this fund have a track record of growing platforms in your industry and exiting successfully? Rollover is a bet on a specific team. Diligence them the way they diligence you. ## Frequently Asked Questions ### Is rollover equity required in a private equity deal? Not always, but most PE buyers will ask for some rollover, often 10% to 30%. Owners who want a full cash exit can still sell, but the buyer pool may shift toward strategic acquirers and some PE firms will lower their price or pass. A competitive process shows you what the market will actually pay for each structure. ### Do I pay tax on rollover equity at closing? If the transaction is structured correctly, usually under Section 721 or Section 351, the rolled portion is generally tax-deferred until you sell the new equity. If the structure is wrong, you can owe tax at closing on equity you cannot sell. Have a transaction attorney and CPA design the structure before the LOI is signed. ### What happens to my rollover equity if I leave the company? That depends on the repurchase or "leaver" provisions in the operating agreement. Good terms let you keep your equity, or be bought out at fair market value, if you leave without cause. Bad terms let the company buy your equity back at cost. This is one of the most important provisions to negotiate. ### Can rollover equity lose value? Yes. Your rolled equity sits behind the platform's debt and, in many deals, behind the fund's preferred return. If the business underperforms, rollover value can fall sharply or go to zero. Only roll an amount you can afford to have tied up for five to seven years. ### How is rollover different from an earnout? An earnout pays you more cash later if your business hits specific targets, usually within one to three years. Rollover makes you an owner of the new, larger company and pays out when the fund sells the platform. Earnouts depend on your business's results; rollover depends on the whole platform and the fund's exit. ## Talk to an Advisor Before You Answer the Rollover Question The rollover line in a letter of intent is not boilerplate. It decides how much cash you take home, how much risk you keep, how your taxes work for the next decade, and how much say you have in what happens to the company you built. Getting it right means knowing your own number before the buyer gives you theirs and negotiating the terms while you still have leverage. CBH Business Group advises Florida business owners through sales and recapitalizations in Miami, Tampa, Orlando, Jacksonville, Fort Lauderdale, Naples, Sarasota, Palm Beach, and across Central Florida, focusing on companies with $3M to $50M in revenue. CBH was named among the Top 50 Brokers in Florida for 2024 and 2025 and was the #1 Top Dollar Producer in Central Florida in 2025. Start with a free valuation at https://cbhbusinessgroup.com/valuation-calculator to see what your business could be worth to a private equity buyer. If you already have an offer with a rollover component, or want to understand your options before you take a call from a fund, book a confidential conversation with Jesse Hastings at https://calendly.com/jesse-cbhadvisory or call (407) 908-3845.