Protecting Control When a Founder Rolls Equity Into the Buyer

The situation

Marek is a dentist who spent a decade building a single practice into a small group, then spent the years after that acquiring others. By the time his group approached a general dentistry practice in Stoney Creek, buying practices was a routine part of the business, and Marek had a deal team to run it: himself as the principal decision-maker, and Zofia, a technology executive he had brought in to run operations and integration across the group's growing roster of clinics.

The Stoney Creek practice was being sold by its founder, Simran, who had built it over roughly twenty years and was not ready to walk away entirely. Simran wanted to keep working chairside for a few more years and wanted a piece of the upside if the group kept growing. The two sides agreed early that the purchase price, in the range of $65 million once real estate, equipment and goodwill were accounted for, would not be paid entirely in cash. A meaningful slice of it would instead take the form of equity in the buyer's holding company — an arrangement known as rollover equity, where a seller reinvests part of their proceeds into shares of the acquiring entity rather than cashing out completely.

Marek's deal team retained our firm not to negotiate the price, which the parties had already settled between themselves, but to make sure that once Simran held a minority stake in the holding company, the buyer would still run the business the way it always had.

The stakes went beyond this single acquisition. The holding company already carried rollover equity from two earlier deals, each with its own minority holder, and Marek's team was in active talks to acquire a fourth practice elsewhere in the region. Every new class of minority shares had to fit into a structure that could keep expanding without the group losing its ability to move quickly on financing, staffing decisions, or the next acquisition. A shareholder agreement drafted loosely for this one transaction risked becoming a template problem repeated across every deal that followed.

The negotiating problem

Rollover equity sounds simple in principle: instead of $65 million in cash, the seller takes most of it in cash and rolls the rest — in this case, roughly $9 million — into shares of the buyer's holding company. In practice, it creates a new shareholder with an ongoing stake in decisions that used to belong entirely to Marek and his existing investors.

Our review of the term sheet the parties had sketched out found three gaps that, left unaddressed, would have handed Simran more leverage than either side intended.

• The draft said Simran would receive "minority shares" but did not specify voting rights, board representation, or whether those shares carried any approval rights over major company decisions such as future acquisitions, new debt, or a future sale of the group itself.
• There was no mechanism for the buyer to eventually buy out Simran's stake — no call option, no valuation formula, nothing that addressed what would happen if Simran wanted to retire in five years or if the relationship soured before then.
• Nothing in the draft restricted Simran from competing with the group or soliciting its patients and staff after an eventual departure, despite Simran continuing to work inside the business with full knowledge of its patient relationships and referral network.

None of this made the deal unworkable. It meant the shareholder agreement — the contract that governs how shareholders in a private company relate to each other and to the company — had to do real work that a term sheet had left undone.

What we did

1. Classified Simran's shares as non-voting or limited-voting. We structured Simran's rollover stake as a separate class of shares carrying economic rights — a share of profits and of any future sale proceeds — but no vote on ordinary operating decisions, and no seat on the holding company's board. This let Simran participate in the upside of future growth without participating in the day-to-day governance of a group with multiple locations and other minority holders from earlier acquisitions.
2. Reserved a narrow list of matters requiring Simran's consent. Rather than give Simran no voice at all, which would have made the rollover feel like a formality, we negotiated a short, specific list of protected matters — primarily changes that would dilute Simran's class of shares or alter the economic terms attached to them. Everything else, including new acquisitions, financing, and operational decisions, stayed with Marek's team.
3. Built in a buyout mechanism with a defined valuation formula. We drafted a call option letting the holding company buy back Simran's shares after a set number of years, or earlier on Simran's departure, using a valuation formula tied to the group's earnings rather than an open-ended negotiation. This gave both sides a known exit path instead of an indefinite entanglement.
4. Added restrictive covenants scaled to Simran's ongoing role. Because Simran would keep treating patients and interacting with staff after closing, we included non-solicitation and non-competition covenants running for a period after Simran's eventual departure from the practice, drafted narrowly enough — limited to the group's existing patient base and geographic footprint — to hold up if ever challenged, since overly broad restrictive covenants are the ones most likely to be struck down.
5. Coordinated the shareholder agreement with the purchase agreement's indemnity terms. Simran was also giving representations and warranties in the underlying purchase agreement — standard promises about the state of the business being sold. We made sure any post-closing indemnity claims arising from those promises could be satisfied, at least in part, by clawing back against Simran's rollover shares, so the buyer was not left pursuing a minority shareholder personally for a breach discovered after closing.

The outcome

The deal closed on schedule. Simran received roughly $56 million in cash at closing and rolled the remaining approximately $9 million into non-voting shares of the holding company, with the protected-matters list, the buyout mechanism, and the restrictive covenants all documented in a shareholder agreement signed alongside the main purchase agreement.

For Marek's deal team, the practical result was that the group could continue acquiring other practices, taking on financing, and making operational decisions without needing sign-off from a minority holder who was, understandably, focused on her own economic interest rather than the group's broader strategy. For Simran, the arrangement delivered what she wanted — continued income from the practice's growth and a defined path to eventually cash out — without the ambiguity that the original term sheet would have left behind.

Two years after closing, the buyout mechanism was tested when Simran decided to reduce her clinical hours ahead of a planned retirement. Because the valuation formula and the timeline had been fixed at the outset, the group exercised its call option and completed the buyback without a renewed negotiation over price, closing out the rollover cleanly and on terms both sides had agreed to years earlier.

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