What Exactly is a Rollover and Why Should a Seller Care?

About the Episode

Selling your business through a rollover is complicated. Attorney Trevor Crow breaks this technical topic down into clear language as he explains how a rollover works, discusses major terms and documents involved, offers insights into the tactics and negotiating strategies employed by PE firms, explains what to expect, and highlights the critical element of understanding the economic provisions involved in a rollover. Listen to this discussion and maintain your negotiating leverage by knowing what to expect.

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“I think the seller’s expectation during rollovers should be that you’re going to lose control of the company, but there are things you can do to help alleviate the pressure of that.”

Trevor Crow

In this Episode

1:41 What is a rollover?
3:48 What’s the objective of a rollover?
6:40 How does a rollover fit into the overall M&A transaction structure?
9:49 Do family offices and search funds use rollovers?
11:37 What are the alternatives to rollovers?
14:55 How can a rollover provide a “second bite at the apple” in terms of a business owner cashing out when they sell?
17:53 Are private equity firms primarily LLCs? How are venture capital firms typically set up? Do different entity structures impact a rollover?
25:41 What expectations should a seller have during a rollover?
29:13 Early in the negotiating process, how much communication is there to make sure that visions and expectations are aligned between the seller and the buyer?
30:15 How important is the seller’s leverage before signing the letter of intent (LOI)?
33:02 What documents are needed to record a rollover transaction?
39:08 How does the contribution agreement work, and how much complexity does it add to the purchase agreement?
41:25 What are the major terms to consider in an LLC operating agreement?
43:25 What are the objectives of the mechanisms a PE firm will put into a rollover agreement?
47:00 How important is it to negotiate and sign a well-defined LOI early in the sales process?
52:42 What is the proper length for an LOI? What problems does a one-page LOI present?
56:16 What are the benefits of a seller hiring an attorney to assist in negotiating the LOI?
57:44 What is the most important benefit or piece of advice to sellers when it comes to rollovers?

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Acronyms or Terms Used in This Episode

  • Family Office – a privately held wealth management firm that works with just one or a few wealthy families with the goal of protecting and increasing their wealth over generations
  • Search Fund – a form of private equity in which the fund looks to acquire firms where that will also take an active role in the operations of the company after the acquisition
  • Earnout – an agreement where the buyer pays part of the purchase price to the seller based on the future performance of the company or the fulfillment of some other specified event
  • VC – venture capital – firms that raise money from limited partners (LPs) to invest in promising startups or even larger venture funds
  • LLC – limited liability company – a legal business entity that limits the amount of personal liability its owners are exposed to
  • UBTI – unrelated business taxable income
  • C Corp – a corporation that has elected to be taxed as an entity separate from its shareholders and may therefore be subject to double taxation if a sale is structured as an asset sale
  • S Corp – a state-incorporated business that elects to receive special tax treatment
  • LOI – letter of intent

Meet Our Guest

Trevor Crow

Trevor Crow

Attorney and Co-Founding member at Doida Crow Legal

Trevor Crow is an attorney and co-founding member at Doida Crow Legal, which started in 2021. Trevor specializes in business transactions, including the purchase and sale of businesses, entity selection and formation, equity and debt financing transactions, and complex joint ventures. He also counsels business entities and individuals on income tax planning and transactional tax planning.

Trevor co-founded Crow Legal LLC in 2018 and worked as an attorney and director at Otten Johnson from 2014 – 2018. He holds both a J.D. and an L.L.M. in Taxation from the University of Denver – Sturm College of Law and has a B.A. in Finance from the University of Colorado at Boulder.

Location Location: Denver, Colorado

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