My VP asked me about a deal that is about to close. I told him the founder was going to roll 25% and that a bank was funding $9mm of the $20mm purchase price. He said, "Will the founder own 25% of the pro forma company?" I said I assume so since he is rolling 25%. He tried to explain to me that the founder's equity may be different than 25% depending on how the equity roll was defined and since there is debt in the financing of a portion of the transaction. We are the sell-side M&A bankers. He said that sometimes private equity will disguise the true nature of the roll and the leverage will not benefit the post-close equity position of the founder. Can someone explain this concept or point me to some material I can read to enlighten myself? Thank you
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