For bullish founders, there is no need to sell 100% of the company and limit upside business exposure. Rolling over equity into the acquiring company is a valid way to get liquidity in a transaction and allowing founders to continue to have upside potential in the business.
Simplistically, founders may think that when they seek liquidity, the only option is to sell 100% of their company either to a strategic or financial buyer. But the reality is that a buyer can, for example, purchase the company and pay a portion of the consideration in cash and another portion in equity, bringing in the seller founders into the combined business.
This is sometimes referred to the possibility of “a second bite at the apple”, implying that sellers first got liquidity when they partnered with the buyer, and they continue to have equity in the combined business which will allow them to also get a future payout when the new combined business gets sold again.
By doing this, sellers are focusing on bringing an ideal partner to the table that will unlock the company’s growth for its next phase. We are fond of equity rollovers given the alignment that is created between founders and new partners into the next phase of the business’ growth.
At Alten Capital we invest in technology services businesses. Please reach out to explore potential partnerships.