The article discusses rollover equity in private equity (PE) acquisitions of physician practices, focusing on how it aligns selling physicians’ interests with the PE partner. In these transactions, a PE-sponsored management services organization (MSO) typically purchases nonclinical aspects of a practice. Consideration for the sale often includes cash and rollover equity in the MSO, usually split around 75-25.
Key points:
- It allows selling physicians to share in the potential future growth of the MSO platform, including benefits from follow-on acquisitions and increased efficiency.
- Physicians also share the risk of any decrease in the MSO’s value.
- Rollover equity ties a portion of the physicians’ sale proceeds to the ongoing success of their practice within the MSO. The hope is for a higher valuation at a future exit transaction.