Management Rollover
Definition
A management rollover is when a target's management team (or existing owners) reinvests — "rolls" — a portion of its sale proceeds into equity of the post-LBO company rather than cashing out entirely. Rollover equity typically sits alongside the sponsor's equity in the new capital structure.
Sponsors like rollovers because they align incentives (management has real money at risk), signal management's confidence in the plan, and reduce the sponsor's required equity check. Rollovers are often structured tax-deferred so managers do not pay tax on the rolled portion at closing (structure-dependent).
Rollover equity is distinct from a management incentive plan (option or profits-interest pool, commonly around 5–15% of equity, terms vary), which is new incentive equity granted post-close rather than reinvested proceeds.
Why interviewers ask
In LBO model tests and sources-and-uses questions, rollover equity appears as a source of funds that reduces sponsor equity. Interviewers may ask why sponsors want management to roll, or how a rollover changes deal alignment and the equity split.
Related terms
Interviews don't test definitions — they test recall under pressure.
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