In the Indian M&A landscape, particularly in private equity-led acquisitions of founder-driven companies, retaining the founders post-transaction has become increasingly important. Founders often embody the institutional knowledge, customer relationships, and operational control that are critical to a business’s continuity and future growth. To address this, acquirers have traditionally relied on mechanisms like earnouts, where part of the purchase consideration is deferred and paid only if the company meets certain performance targets. Earnouts function as an incentive for the founder to stay engaged during a transitional period, ensuring short-term alignment.
However, earnouts are contractual and time bound. Once the earnout period ends, the founder has little ongoing stake in the future of the business unless separately incentivised. They are also prone to disputes around performance metrics and accounting treatment. As an alternative, a more enduring and equity-aligned structure has begun to gain traction in Indian deals which is ‘rollover equity’.
‘Rollover equity’ allows the founder to continue as a stakeholder in the business even after selling a majority or controlling interest. Instead of receiving the entire consideration in cash, the founder retains or reinvests a portion of his/her shareholding into the acquirer or a newly formed holding company. This gives the founder an ownership interest in the post-acquisition structure, allowing them to participate in the long-term upside of the business alongside the new investor. Importantly, this continuing economic stake acts as a powerful enabler for founders to remain invested—not just financially, but also operationally—after the sale.
‘Rollover equity’ aligns with the founder’s interests with those of the acquirer on a broader and longer time horizon. Founders are no longer merely service providers fulfilling transition obligations—they are co-owners of the restructured business, with real capital at stake. This deeper alignment results in greater commitment, smoother integration, and a more stable leadership structure post-acquisition. In India, this concept is gaining traction, especially in sectors where businesses are built around founder leadership and where acquirers prefer not to disrupt the existing operating model too abruptly.
‘Rollover equity’ structures have been increasingly observed in private equity-backed control deals, where investors seek both ownership and continuity. There are two primary ways in which ‘rollover equity’ can be structured. One is through a share swap, where the promoters exchange their shares in the target company for shares in the acquiring company or a holding company used for the acquisition. The other is a reinvestment structure; the promoters sell their shares and reinvest part of the proceeds into the acquirer. Both structures result in the promoters becoming shareholders of the acquirer, which may hold the target company directly or through a layered structure.
From a legal perspective, rollover equity in domestic transactions must comply with the provisions of the Companies Act, 2013, particularly in relation to share issuances, valuations, and board and shareholder approvals. If the acquiring company is issuing shares to promoters as consideration for their shares in the target, it must do so in accordance with Section 42 or Section 62 of the Act, depending on the mode of issuance. This includes complying with pricing guidelines, filing private placement offers, if applicable, and conducting a valuation from a registered valuer to determine the fair value of shares being issued.
Governance rights for promoters holding ‘rollover equity’ are also important. The promoters as they become minority shareholders in the acquirer or hold company, they negotiate shareholder rights—such as board seats, information access, or veto rights particularly concerning the target company, to retain influence in key decisions during the transition and scaling phases.
In conclusion, ‘rollover equity’ offers a middle path between a full exit and continued operational management. For acquirers, it provides continuity and reduces integration risks. For founders, it offers not only partial liquidity but also a way to get meaningfully involved in the long-term journey of the business they built—with equity, not just employment, as the anchor. They can also get benefited in future from the sale of the equity. Its adoption also reflects the growing maturity of India’s dealmaking landscape, where full exits are no longer always viewed as necessary or desirable at the first stage of acquisition.
[The article is authored by Corporate and M&A Team at Lakshmikumaran and Sridharan, Hyderabad]
