In acquisitive transactions, allowing the seller to obtain an equity position in the buyer (“carryover equity”), rather than simply using cash consideration, can be beneficial for both parties. A buyer can use its own equity as currency, reducing the amount of cash and other financing needed for the transaction. At the same time, using carryover equity allows a seller to participate in the upside of the acquiring company and defer at least some of the taxable gain generated by the sale. 

Republished with permission.