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Be more specific with regard to your question.
When current management uses their equity (their stake of the company) to help fund a transaction of their company.
^ that seems confusing, but let's say their company is going to go through an LBO. They will take their ownership of the company, and put that equity towards the total cost of the company. So, both the sponsor and management will have ownership (though, 9/10 times the sponsor will own more).
thanks, this is very helpful. Two questions: 1. So essentially, it works the same way as sponsors' equity, and that's why both of them go into the "sources" section? 2. Who bears the cost of the management rollover, will the management spend their own cash just as PEs do, or will PE firms "give" the "management rollover" to the management? and how does that accounting work?
The root of the word "rollover" implies that management had an equity stake prior to the transaction. The sponsor purchases a portion of management's equity and they "roll" the rest. From an S&U perspective, this rolled equity helps fund the 100% purchase price.
It would be very odd indeed for a sponsor to "give away" equity to management. In most cases, a management team that doesn't hold a significant equity stake in the target would be granted options struck at the deal price, which vest according to various milestones.
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