For advisors selling their firms, rollover equity means receiving part of the purchase consideration as equity in the acquiring enterprise. Sellers are therefore evaluating an investment in the buyer as well as a sale of their own business.
According to Advisor Growth Strategies, equity accounted for an average of 29% of the consideration in change-of-control transactions in 2025, and buyers expected that share to rise to 33% in 2026.
“Fast growing buyers actively making acquisitions and achieving organic growth could bring real value to the sellers a few years down the road on the rolled equity value if things go well and they continue to grow and achieve a successful exit,” said Jim Abbott, Partner and Co-Head of the Corporate M&A Practice at Seward & Kissel. “It is an investment in a leveraged roll up transaction, and could result in a lucrative ‘second bite at the apple’ for the sellers.”
But there are several risks. Rollover equity is generally illiquid for several years, so a seller is essentially ceding upfront cash for uncertain future gains. And the value of equity depends on the competence of the buyers to grow the business, execute a sound strategy and properly manage risk and costs.
That’s why experts say buyers are not the only ones who should conduct careful due diligence. Sellers should research the people who will determine whether the equity they will accept in lieu of cash will be worth anything in the future.
“A seller should understand the buyer’s long term plan,” said Josh Harris, President, M&A at Coldstream. “Nothing is set in stone of course, but understanding the expected journey as best as possible is critical in gaining comfort in this decision.”
Just Another Investment
Experts say the deal ultimately comes down to how much risk a seller is willing to accept versus the certainty of cash.
Abbott said buyers value their own businesses at higher multiples of earnings before interest, taxes, depreciation and amortization than they apply to the RIAs they acquire. Very few deals are all-cash transactions unless the seller is retiring, so sellers should generally expect some rollover equity, he said.
“A seller considering rollover buyer equity as consideration for an RIA business must decide first if they see that as an upside opportunity or would prefer more up-front cash,” Abbott said. “Most buyers require rolled equity as part of the deals but may accept as little as 20% rolled equity and as much as 35% or even more.”
Perhaps the seller should look at rollover equity as another asset in their portfolio.
“Rollover equity should be evaluated as a new investment, not simply part of the sale price,” said Bryan Staff, Co-Founder and Managing Partner at Merchant. “Sellers should assess the acquiring enterprise’s valuation, financial strength, growth strategy and alignment of interests. The real opportunity is participating in value creation beyond what their standalone business could achieve.”
Said Nate Angelo, CEO at Composition Wealth: “Rollover equity is an investment in the business you’re helping build, not simply deferred cash. Ask what your stake could be worth over time under realistic assumptions.”
Reverse Due Diligence
Due diligence on the buyer includes examining its financial condition, assets under management (AUM) and growth strategy.
“The seller should conduct reverse due diligence on the buyer,” said Bomy Hagopian, Partner and Head of Wealth Management at Berkshire Global Advisors. “Info requests should include historical, current and projected financials, current and pro forma leverage ratios, a 5-year historical AUM roll forward and organic and inorganic growth rates. Info requests should also include the cap table, equity valuation metrics, historical and pending litigation, corporate structure chart and operating agreement.”
Angelo also says sellers should closely scrutinize buyers offering rollover equity.
“Look closely at the buyer’s capital structure, investors, and track record,” he said. “Ask how it plans to grow and fund that growth. Meet the decision-makers and learn how they approach key decisions. Rollover equity is a partnership: you’re backing the team and its ability to execute, and they are backing you and your practice.”
Read The Fine Print
Buyers can offer equity with various restrictions and economic rights. Sellers should examine liquidity restrictions, information rights and distribution priorities to understand what they will own and how they may realize its value.
“Not all equity is created equal,” Staff said. “Sellers must understand their position in the capital structure, distribution priorities, dilution protections, governance rights, transfer restrictions and liquidity provisions. The headline ownership percentage matters far less than the economic rights attached to it and how those rights translate into actual proceeds.”
Said Harris: “In most cases, equity in an RIA is an illiquid security, subject to potentially long redemption periods, and balancing the needs of retiring shareholders, capital needs for the business, bank covenants, and the preferences of capital partners. Each of these is important to understand in the decision to ask for more or less equity.”
Cash Or Equity?
It really depends on the seller.
“The financial situation and risk tolerance of the seller will matter to determining whether to discount the equity component of the consideration in comparison to the cash portion,” Abbott said. “Some sellers want more equity because they believe there is upside for that portion of what they will receive and others prefer cold, hard cash.”
If the seller wants to invest, it does not have to be in the acquiring enterprise. Cash from the sale can provide immediate resources the seller needs to pursue other opportunities, Hagopian said. But if the deal is structured correctly, accepting rollover equity can allow the seller to defer taxes.
“Cash gives immediate liquidity with taxes payable upon receipt, no additional upside beyond any earnout payments and the ability to invest after-tax proceeds,” she said. “Rollover equity is often illiquid until the buyer has a liquidity event and offers tax deferral potential and additional upside potential.”
Sellers shouldn’t focus entirely on the numbers buyers assign to rollover equity, Staff said. The value ultimately realized may differ from the valuation assigned to the equity at closing.
“Cash represents certainty and immediate liquidity; rollover equity represents risk and future opportunity,” Staff said. “Sellers should evaluate equity based on realistic, probability-weighted outcomes rather than headline valuations. The appropriate balance depends on personal liquidity needs, risk tolerance and confidence in the acquiring enterprise’s ability to compound value.”
Harris offers a different caution: In his experience, sellers often take too little rollover equity. He said the appropriate amount depends on their personal goals, but he views the equity as valuable when a sale is intended to create a better future.
Path To Exit
For rollover equity to gain value, the acquiring enterprise needs to grow, whether through acquisitions or organic growth. Sellers should evaluate the buyer’s ability to execute its strategy and the role they will play after joining the enterprise.
“A lot must go right for value to continue growing — the buyer must continue to grow both through additional accretive acquisitions but maybe more importantly through organic growth of its clients and assets under management,” Abbott said. “Debt must be kept at a reasonable level or ideally be paid down to lower levels.”
Abbott said an eventual exit could involve a recapitalization with larger investors or an IPO. He added that the industry is only beginning to see whether these large exits can occur at attractive valuations.
Said Angelo: “The business needs to grow earnings by executing well: retaining and investing in talent, successfully integrating acquisitions, and deploying capital with discipline all in an effort to create meaningful impact in the lives of our clients. Then there needs to be a liquidity event to realize that value. That depends on acceptable terms and an aligned shareholder group; growth alone doesn’t guarantee liquidity.”
“Execution and alignment are everything,” Staff said.
Avoid These Mistakes
Experts say sellers often think of rollover equity as a secondary topic to figure out later. But accepting the equity means sellers will be tied to the business for the long term.
So sellers should know what they are getting into.
“Too many sellers wait until too late in a transaction process to focus on the rolled equity terms,” Abbott said. “The degree to which these transactions are a very long term commitment to remaining with the buyer has to be understood and will be clear in the equity terms once reviewed. How someone can in the future retire or otherwise depart from the buyer should be fully understood.”
Said Staff: “The greatest mistake sellers make is negotiating the price of their business more carefully than the value of the equity they’re receiving. A high transaction multiple means little if the rollover equity sits behind excessive leverage, lacks meaningful shareholder protections or participates in an enterprise without a credible growth strategy.”
Hagopian says sellers should enlist outside help.
“Sellers who are not advised by a sell-side advisor may not undertake sufficient reverse due diligence on the buyer or know what to evaluate,” she said. “Sellers may not understand how the buyer’s equity is valued or the rights and restrictions of the rollover equity.”
Larry Roth is CEO of Wealth Solutions Report and Founder and Managing Partner of Ascentix Partners.
