Series 79 practice questionmediumManagement Buyouts
In a management buyout (MBO), what is rollover equity?
- ADebt provided by existing lenders to facilitate the transaction
- BStock options granted to new management post-closing
- CPortion of management’s existing ownership that is reinvested in the newly private company✓ Correct answer
- DPreferred shares issued to institutional investors as part of the financing
Explanation
Why C — Portion of management’s existing ownership that is reinvested in the newly private company
Rollover equity is when management reinvests some of its ownership into the post-buyout entity, aligning interests. Confusing it with debt or new options misses the purpose of maintaining management’s stake.
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