Management Rollover: Clarification

There are a few other discussions on this topic, but I want to go into a little more depth (past the initial "How do I do this easy example"). I will provide two different situations (which have both happened) and would love to hear how everyone thinks through each of these sources and uses (as well as the pro-forma ownership of the firm post transaction).

As a background, I am a third year analyst at a BB and have seen and heard all 3 of these structures used. Particularly, a potential acquirer was attempting situation 3 a few months ago.

To begin: Both situations assume "pari passu" in the capital structure and cash-free/debt-free basis.

Situation 1: Indication: Management will be rolling over 20% of proceeds into the deal.

EV = 250MM EBITDA = 25MM Debt = 0 Cash = 0 Multiple = 5x

**Proposed S&U: ** Sources: Debt: 125MM Sponsor: 75MM Rollover: 50MM

Uses: Purchase of Equity: 200MM Rollover: 50MM

Proposed Ownership: Shared Leverage Benefits Sponsor: 60% Management: 40%

Situation 2: Indication: Management will be rolling over 20% of ownership into the deal

EV = 250MM EBITDA = 25MM Debt = 0 Cash = 0 Multiple = 5x

**Proposed S&U: ** Sources: Debt: 125MM Equity: 100MM Rollover: 25MM

Uses: Purchase of Equity: 225MM Rollover: 25MM

Proposed Ownership: Shared Leverage Benefits Sponsor: 80% Management: 20%

Situation 3: Indication: Sponsor will purchase 80% of the firm at a 250MM valuation

EV = 250MM EBITDA = 25MM Debt = 0 Cash = 0 Multiple = 5x

**Proposed S&U: ** Sources: Debt: 125MM Sponsor Equity: 75MM Rollover: 50MM

Uses: Purchase of Equity: 200MM Rollover: 50MM

Proposed Ownership: Sponsor: 80% (Book Value of equity increased to 100MM by debt entry to capital structure) Management: 20% (Book Value of equity diluted to 25MM by debt entry to capital structure)

The question I have is, which is the most common situation that you have seen?