What is rollover equity in a practice sale?
Rollover equity is a structural element of a private equity acquisition where the seller takes a portion of the purchase price in the form of equity in the buyer's entity instead of cash at close.
Quick answer
Rollover equity is the portion of sale proceeds that the selling owner retains as equity in the buyer's platform, typically 15 to 30 percent of total consideration, creating a second liquidity event when the platform is later sold.
The detail
Rollover equity is how PE buyers align incentives and conserve cash. In a typical deal, 15 to 30 percent of the purchase price converts into preferred or common equity in the acquiring platform. The seller continues to own that stake through the PE firm's hold period, usually 4 to 7 years, and participates in the gain when the platform is sold or recapitalized. The math can be compelling: if the platform is bought at 8x EBITDA and exits at 12x EBITDA after operational improvements, the rollover stake can multiply 1.5x to 3x, often generating a second liquidity event larger than the cash taken at close. Key risks: the seller does not control the platform's strategy, the next exit may not happen on the expected timeline, and rollover equity is typically illiquid until the next transaction. Structural questions matter — common versus preferred, drag-along rights, tag-along rights, and any minimum return guarantees. Most rollover is common, which means sellers share downside risk.
Rollover equity typically represents 15 to 30 percent of total consideration in healthcare PE deals.
Typical PE platform hold periods run 4 to 7 years, after which the platform is sold to a larger sponsor or strategic acquirer.
Source: Pitchbook PE Trends
What this means for clinic owners
From Sorso
Rollover is a bet on the PE firm's platform thesis and the broader sector multiple. If you believe in the platform and the sector, the second bite of the apple can outweigh the cash at close. If you are selling because you want out, take more cash and less rollover — whatever the spreadsheet says.
Related questions
How do PE firms value medical practices?
Private equity firms value medical practices primarily on a multiple of trailing twelve-month adjusted EBITDA, typically 5x to 12x, with the multiple driven by scale, growth, payer mix, and provider retention.
What is the difference between platform and add-on multiples?
Platform acquisitions trade at 8x to 14x EBITDA because the buyer pays for scale, infrastructure, and management, while add-on acquisitions trade at 4x to 7x EBITDA because they bolt onto an existing platform.
What is an LOI in healthcare M&A?
A letter of intent (LOI) in healthcare M&A is a non-binding agreement that sets the proposed purchase price, structure, exclusivity period, and diligence timeline before a buyer commits the resources to close a deal.
What is a working capital peg in an M&A deal?
A working capital peg is the target level of net working capital the buyer expects at close; delivery above or below the peg results in a dollar-for-dollar purchase price adjustment, typically reducing a headline price by 3 to 8 percent at close.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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