Rollover Equity Transactions: Business & Tax Planning Fundamentals
During the past decade, financial buyers such as private equity firms (PE firms) have dramatically increased their participation in the M&A marketplace. PE firms and other financial buyers generally acquire companies with the intention of holding them for a three to seven-year period and then (hopefully) selling their "portfolio company" for a profit. Most PE firms look for target companies with strong management teams. PE firms also often encourage a target company's equity owners (referred to in this article as "founders") to "roll over" a portion of their equity, so that the founders own a minority equity position in the target company or its holding company after the transaction closes.
Click here to view this article in its entirety and learn more about:
- What is driving the popularity of rollover transactions?
- How rollover transactions are structured
- Succession planning for business owners
- Viewing rollover equity as a minority investment by the founder
- Founders should undertake their own due diligence investigation of potential buyers
- The financial aspects of rollover equity
- Vesting of rollover equity
- Typical minority ownership issues confronting founders
- Structuring a rollover transaction from a tax standpoint
- Structuring taxable rollover transactions
- Structuring tax-free equity rollovers
- Purchasing less than 100% of the target company's equity
- The holding company formation transaction structure
- The LLC "drop-down" transaction structure
- Tax-Free Reorganizations
- Avoiding tax traps
- The use of "contribution agreements" in tax-free rollover transactions
- Earn-out arrangements
- Incentive equity pools
- Legal representation and disclosure issues
For more information, please contact Scott Dolson or any other Frost Brown Todd LLC transaction attorney, or a Frost Brown Todd tax attorney for Tax Law Defined™ with respect to the tax aspects of the equity rollover.
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Carl C. Lammers is a member of FBT, counseling employers on the design and administration of employee benefit plans, including defined contribution and defined benefit pension plans, ESOPs, and health and welfare benefit plans.