Digging into Rollover Equity: A Recent Delaware Chancery Ruling is a Cautionary Tale for Business Owners Taking Rollover Equity in M&A Deals

At a Glance

In Feeney Brothers Excavation Trust v. Artera Services Holdco, LLC (Del. Ch. July 31, 2026), the sellers of a utility construction business turned down a higher all-cash offer to accept a deal with $30 million in rollover equity priced at $160 per unit. Three years later, that equity was valued at $0.08 per unit. When the sellers found out, they sued the buyer for breach of contract, breach of the implied covenant of good faith and fair dealing, and fraud, but the court sided with the buyer on all counts. This case demonstrates that the failure to negotiate contractual protections regarding the value of your rollover equity may leave you without a legal remedy if the value is not as advertised.

Dig Deeper

In meetings and presentations prior to closing, the buyer told the sellers that their rollover equity would be worth $160/unit and painted a promising growth picture, suggesting the rollover equity could be worth far more in the near future. However, none of those statements mattered because they were not contained in the Rollover Agreement, which included a non-reliance clause in which the sellers represented that no representations or warranties had been made about the rollover equity or the buyer’s financial condition, except those expressly made in the agreement (none of which pertained to financial condition or value).

In other words, it was legally irrelevant whether the buyer’s rosy projections were sincere or intentional lies. The sellers had represented that no outside statements had been made, so the court looked only within the four corners of the Rollover Agreement.

The takeaway is that oral promises are legally meaningless if a party signs a contract saying that they don’t exist. If a representation matters, make sure it is included in the written agreement.

Rollover Protections for Sellers

If you’re rolling equity, consider treating the buyer the same way the buyer is treating you. Just as a buyer conducts diligence on the target company, a rollover seller should conduct diligence on the entity into which it is rolling. And just as a buyer would translate its diligence into explicit deal terms, a rollover seller should seek to do the same. For example, rollover sellers can negotiate for:

• Representations on fair market value of the rollover entity’s equity, ideally supported by a recent independent valuation (a copy of which you should request).
• Representations on capitalization, including a capitalization table containing all outstanding equity interests and issuance prices.
• Financial representations such as audited financials and a recent balance sheet.
• Representations on organizational documents to determine minority investor protections, liquidity rights, distribution preferences, governance rights, and the risk of future dilution.

The Feeney court noted that while the Purchase Agreement had extensive representations about the target company, the Rollover Agreement was devoid of all but the narrowest representations about the buyer and the rollover equity.

Buyers Take Note

This case is a good example of effective non-reliance language, which buyers should seek to include in their rollover agreements. Here, those provisions led to a total dismissal of the sellers’ claims.

However, regardless of the buyer’s success in court, litigation is always costly. Beyond the time and expense required to defend the case, the buyer in Feeney Brothers may find it harder to convince the next seller to accept rollover equity rather than cash.