Cash at Close vs. Rollover Equity: How to Read a PE Offer
A headline price is rarely all cash on day one. Here is how rollover equity works, why buyers ask for it, and what to check before you agree.
Two offers at the same multiple can leave you with very different outcomes. What matters is how much you receive, when you receive it and what must happen first.
What rollover equity means
With rollover equity, you reinvest part of your sale value into the buyer's company instead of taking it all as cash. On a $3M deal structured as 70% cash and 30% rollover, you would receive $2.1M at close, before debt, fees and taxes, and hold $900,000 of equity.
Why buyers want it
Rollover keeps you invested in the clinic's performance after the sale. It also reduces the cash the buyer needs up front. For you, the appeal is a possible "second bite": if the platform later sells for more, your stake could be worth more.
It could also be worth less. Rollover equity is an illiquid investment in a company you won't control.
Questions to ask about the rollover
- What's the valuation of the equity I'm receiving? Your stake is only as good as the price it was issued at.
- What class of equity is it? Ask whether it sits behind debt or preferred investors.
- When can I sell? Understand the likely timeline, and what happens if you leave.
- Do I get information rights? You should be able to see how your investment is doing.
- How is it taxed? Rollovers can be structured to defer tax, but the details matter. Ask your CPA.
Other terms that change the real price
| Term | What to check |
|---|---|
| Earn-out | What must be hit, who controls the inputs and how it's measured |
| Working capital | The target, and how adjustments are calculated at closing |
| Escrow or holdback | How much is held back, for how long and for what claims |
| Employment agreement | Your role, pay, length of commitment and what happens if you leave |
| Non-compete | Geography and length, and how they fit your plans |
Compare offers side by side
For each offer, list the cash you'd receive at close after debt, fees and taxes. Then list separately what's contingent, such as earn-outs and rollover. Ask your M&A lawyer and CPA to review the numbers before you sign a letter of intent, because key terms are hard to improve afterwards.
One MedSpa-specific check
Many states restrict who can own or control a medical practice, and these rules often shape how a deal is built. A common approach is a management services organization, where the buyer acquires non-clinical assets and a licensed professional keeps the clinical entity. Rules vary by state, so have healthcare counsel review the structure.
Sources
This article is general information, not legal, tax, financial or medical advice. Rules change and vary by state, so confirm how they apply to you with a qualified advisor.