Retaining Founders: The Rise Of 'Rollover Equity'

In the Indian M&A landscape, particularly in private equity-led acquisitions of founder-driven companies, retaining the founders post-transaction has become increasingly important. Founders often embody the institutional knowledge, customer relationships, and operational control that are critical to a business's continuity and future growth. To address this, acquirers have traditionally relied on mechanisms like earnouts, where part of the purchase consideration is deferred and paid only if the company meets certain performance targets. Earnouts function as an incentive for the founder to stay engaged during a transitional period, ensuring short-term alignment.

However, earnouts are contractual and time bound. Once the earnout period ends, the founder has little ongoing stake in the future of the business unless separately incentivised. They are also prone to disputes around performance metrics and accounting treatment. As an alternative, a more enduring and