A short excerpt from a Private Equity masterclass in which Paul Giannamore explains the key economic issues founders should understand before rolling equity into a PE deal. Topics include equity pools and management incentives, how rollover stakes can be diluted by future acquisitions, reading the assumptions behind PE models, ratchets, liquidation preferences and earnouts, pari passu provisions, and calculating true post-closing ownership. The overall message is that founders should request and scrutinize the PE firm's model and math before closing. # Video Identity Observations ## Explicit Self-Description - **Firm affiliation**: The speaker identifies himself as **Paul Jaimovich** and references his firm: *"Here at Potomac, we love to kill it for our clients."* - **Educational positioning**: He frames the channel's purpose around education: *"education is the cornerstone which allows our clients to make the best decisions for themselves."* - **Claimed expertise**: The downloadable question list is described as *"a culmination of 20-plus years and billions of dollars in transaction with private equity."* - **Service offer**: Direct client acquisition pitch: *"If you own a business and you're being contacted by strategic acquirers, search funds, private equity firms... give us a call. We'll help you forge a plan, whether that exit is a year from now, 5 years from now, or 10 years from now."* - **Content series structure**: The video is part of a broader curriculum: *"We'll be doing the valuation masterclass. We'll be kicking off the buy-side M&A masterclass, and we've got a lot more to say on private equity"* — consistent with the title's "Private Equity Pt. 2 Masterclass Moment." ## Intended Audience - **Business owners contemplating a sale or PE transaction**, evidenced by: *"If you're considering a private equity transaction like Gary"* and *"If you own a business and you're being contacted by strategic acquirers, search funds, private equity firms."* - The audience is assumed to be at the **deal-evaluation stage**: *"you narrow it down. Now, you've got three PE funds that you really like."* ## Claimed Scope - **Private equity deal mechanics** for sellers: rollover equity, ratchets, management option pools, dilution, liquidation preferences, earn-outs, and PE financial modeling assumptions. - **Broader M&A advisory themes**: *"the nuances of how strategic acquirers work, how the operations of private equity firms work, and the psychology and the tactics of an M&A transaction."* ## Observable Presentation Patterns - **Advisory/consultative tone**: Instructs viewers to interrogate deal terms: *"does your rollover equity have any sort of a ratchet in it? How much of the total company equity has been put aside into a... management pool?"* - **Concrete numeric illustration**: Uses a $100M equity value example with a 10% ($10M) management incentive pool. - **Anecdotal framing device**: References a hypothetical seller ("Gary") who chose a buyer over dinner as a cautionary example: *"you can't go into this like Gary."* - **Calls to action**: Contact form link in description, direct LinkedIn contact, downloadable PE question list, and invitations to share the series. ## Claimed vs. Demonstrated Distinction - **Claimed**: 20+ years of experience and billions in PE transactions (creator assertion, not verifiable from this material). - **Demonstrated**: Working fluency with PE transaction terminology (vesting, liquidation preference, rollover dilution, earn-outs, platform add-on mechanics) and a structured educational format with named future series. # Delivery Observations: Rollover Equity, Dilution & Upside ## Tone - **Conversational advisory tone**: speaks as a trusted advisor directly addressing a founder ("If I were you, I would want to know how is the private equity firm modeling this transaction?"). - **Direct second-person address throughout**: "you go out to a process," "you've asked them a bunch of questions," "What needs to happen in order for you to get your return?" - Shifts to **critique by impersonation** when modeling a naive seller: "you can't go into this like Gary, which is like, 'Oh, there's a couple buyers and we sit down and they took me into to a nice dinner. I'm going to give them the deal.' Well, no." ## Vocabulary & Register - Heavy use of **M&A/PE jargon**: "rollover equity," "ratchet," "liquidation preference," "earn-outs," "vesting period," "diluted by financings," "platform business." - **Access-adding filler phrases**: "so on and so forth" appears at least four times ("options, so on and so forth"; "an acquisition, so on and so forth"). - Casual idioms mixed with technical terms: "get down to brass tacks," "par for the course," "pull the trigger," "kill it for our clients." ## Teaching Habits - **Hypothetical numerical example** to ground the concept: > "let's say that the business is worth 100 million. Let's say it's got a 100 million dollar equity value. Are we taking 10% of that, so 10 million of that 100 million, putting it aside..." - **Question-driven teaching**: repeatedly frames concepts as questions the listener should ask — "What assumptions are they using?" "What happens on the upside? What happens on the downside? What happens if we don't perform?" - **Balanced framing** of tradeoffs: "that takes away from the private equity firm, takes away from you, but it also incentivizes the management team." - **Reassurance after warning**: flags dilution risk, then softens it — "Again, this is par for the course on these deals. It's typically nothing to worry about, but it can impact you." - **Explicit scoping of depth**: acknowledges limits — "the smorgasbord of options is way too large for this discussion today." ## Communication Patterns - **Recurring transitional word "Again"**: used repeatedly to re-anchor points ("Again, we talked about your vesting period"; "Again, this is par for the course"; "Again, I'm Paul Jaimovich"), suggesting a habit of recapping or linking back. - **Structured CTA block at the close**: firm branding ("Here at Potomac, we love to kill it for our clients"), contact instructions (contact form link, LinkedIn), lead-magnet offer ("click on the link below to download the questions you should ask private equity"), credibility claim ("20-plus years and billions of dollars in transaction"), and a preview of future content. - **Episodic sign-off formula**: "Thank you for joining me today, and I'll see you on the next one." - **Self-identification at the end**, not the start: "Again, I'm Paul Jaimovich." ## Uncertainty Notes - The transcript contains no timestamps beyond line markers and no metadata; observations about pacing, emphasis, or visual delivery habits (e.g., eye contact, gestures) **cannot be made** from this source. - Single-video sample: patterns like "Again" recurrence and the CTA/sign-off structure appear stable *within* this video but repetition across videos is unverified. # Position Record: Rollover Equity, Dilution & Upside — Know Before You Close **Speaker:** Paul Jaimovich (self-identified at end of transcript) **Video:** *Rollover Equity, Dilution & Upside: Know Before You Close | Private Equity Pt. 2 Masterclass Moment* ## Core Advice: Understand Both Sides of the Math - Jaimovich advises sellers considering a private equity transaction (referencing a client example, "Gary") to spend **quality time understanding both the upside and the downside math**. - He frames the scenario: after running a process with multiple PE bidders, a seller narrows down to **three preferred PE funds** and should then "get down to brass tacks" on economic terms. ## Key Questions Sellers Should Ask ### Rollover Equity & Incentive Pools - **Ratchet provisions**: Does the rollover equity include any sort of ratchet? - **Management incentive pool size**: Using a hypothetical of a **$100 million equity value**, he asks whether ~10% ($10 million) is set aside for management and key employee equity incentives. - He presents this tradeoff as stated: the pool "takes away" from both the PE firm and the seller, **but also incentivizes the management team**. ### Return Mechanics - What needs to happen for the seller to get their return? - Considerations he lists: - The **vesting period** - Whether the seller holds the **same class of equity** - Whether there is any **liquidation preference above** the seller's position ### PE Firm's Model & Assumptions - Sellers should ask how the PE firm is modeling the transaction: five-year projections covering **organic growth, acquisitions**, and overall financial assumptions. - Sellers should identify what numbers must be hit to achieve a given return ("X, Y, and Z"). ## Downside Scenarios Jaimovich raises, without fully resolving, several downside questions: - **What happens if the business doesn't perform?** - Can the PE firm **ratchet away rollover equity**? - Are there **earn-outs** baked in that the seller "isn't going to hit"? - He acknowledges: > "the smorgasbord of options is way too large for this discussion today" — leaving these topics open rather than settled. ## On Dilution - Jaimovich states most PE firms will be "pretty transparent" about the seller's post-closing ownership and likely dilution from **financings and subsequent acquisitions**. - **Mechanism described**: when a platform business makes acquisitions, the PE fund may allow those sellers to roll equity into the platform, diluting the original seller over time. - **Qualification preserved**: he characterizes this dilution as "par for the course" and "typically nothing to worry about, **but it can impact you**." ## Contrast Case: "Gary" - Jaimovich critiques the approach of deciding a deal based on being courted (a "nice dinner") rather than analysis: > "Oh, there's a couple buyers and we sit down and they took me into a nice dinner. I'm going to give them the deal. Well, no. Take control of this and understand it." ## Promotional Positions (Speaker's Firm) - Jaimovich presents **Potomac** as advocating for clients ("we love to kill it for our clients") and frames **education as the cornerstone** of good client decisions. - Offered resources/services: - A downloadable list of **questions to ask private equity**, described as "a culmination of 20-plus years and billions of dollars in transactions" — *claim rests solely on the speaker's assertion*. - Free consultation framing a plan for exits **1, 5, or 10 years out** tailored to financial goals. - Upcoming content: a **valuation masterclass**, **buy-side M&A masterclass**, and more on private equity. ## Unresolved / Qualified Points - No specific answers are given to the ratchet, earn-out, or non-performance questions — these are presented as questions for sellers to investigate. - The claim of PE firm transparency is hedged ("most private equity firms... **will be pretty transparent**"), not universal. # Speaker & Provenance Record ## Video - **Title:** Rollover Equity, Dilution & Upside: Know Before You Close | Private Equity Pt. 2 Masterclass Moment - **ID:** `01a168c7-a197-7b0b-adcf-a5fc13823dca` ## Speakers | Speaker | Role | Evidence | |---|---|---| | **Paul Jaimovich** | **Creator / host** | Self-identifies at close: "Again, I'm Paul Jaimovich. Thank you for joining me today." Delivers the entire monologue; frames series as "Masterclass Moment." | ### Referenced (non-speaking) figures - **"Gary"** — hypothetical/anecdotal business owner example, referenced by the speaker ("like Gary, I encourage you to spend as much time as possible"; "you can't go into this like Gary"). Appears as a cautionary example only. ## Referenced Sources & Claims - **Unattributed experience claim:** "a culmination of 20-plus years and billions of dollars in transaction with private equity" (speaker's self-description of a downloadable question list). - **No third-party sources, studies, or citations** are named in the transcript. ## Promotional Segments (Flagged) - **Firm promotion — Potomac:** "Here at Potomac, we love to kill it for our clients." - **Call-to-action block (closing segment):** - Invitation to contact the firm ("give us a call… specifically tailored to your financial goals"). - Contact form link "in the description of this video." - Direct contact via LinkedIn. - Downloadable list of "questions you should ask private equity" via link below the video. - **Upcoming-content promotion:** valuation masterclass, buy-side M&A masterclass, more private equity content; request to share the series. ## Provenance Notes - Speaker's firm affiliation (**Potomac**) is stated in the transcript; full firm name/role details beyond that are not given. - No curated metadata was supplied; **comment availability is unknown**. - Content consists of the speaker's general guidance and hypothetical scenarios ($100M equity value example); no external data or named third-party claims. If you're considering a private equity transaction like Gary, I encourage you to spend as much time as possible, much quality time, understanding both the upside and the downside math. So, you go out to a process. You deal with a bunch of private equity firms. They're making offers. They're bidding, so on and so forth. And again, you narrow it down. Now, you've got three PE funds that you really like. You want to get down to brass tacks. You've asked them a bunch of questions. You've talked to their band of former CEOs. You're feeling good. You really want to drill down on what the economic terms look like and what's in it for you. Like for example, does your rollover equity have any sort of a ratchet in it? How much of the total company equity has been put aside into a employee management pool, right? So, let's say that the business is worth 100 million. Let's say it's got a 100 million dollar equity value. Are we taking 10% of that, so 10 million of that 100 million, putting it aside, and allowing management and maybe other key employees to have equity incentives, options, so on and so forth? Because of course that takes away from the private equity firm, takes away from you, but it also incentivizes the management team. What needs to happen in order for you to get your return? Again, we talked about your vesting period. Are you in the same class of equities? Is there any sort of liquidation preference above you? Provided that's not the case, walk through the math. If I were you, I would want to know how is the private equity firm modeling this transaction? What sort of assumptions have they made? So, for example, they're going to look at your business right now, and they're going to project it out for five in five years. This is the performance over the next five years. Here's the organic growth. Here's what we'll do on an acquisition, so on and so forth. Here's what the financial model looks like. What assumptions are they using? And what sort of numbers do you need to hit in order to get X, Y, and Z as a return? What happens on the upside? What happens on the downside? What happens if we don't perform? Can they ratchet away any of your rollover? Was there earn-outs baked in there that you're not going to hit? Uh there the smorgasbord of options is way too large for this discussion today, but understanding that and most private equity firms will sit down with you and they'll be pretty transparent. Here's how we model this out. Here's the portion of the business that you're going to own post-closing. Here's likely how you'll be diluted by financings, by subsequent acquisitions. Remember, when you go out and do deals, so you're the platform business for example, you go out and make acquisitions, every time you do an acquisition, the private equity fund might allow that seller now to roll equity into your platform business. And so, as that sort of stuff happens, you could be potentially diluted over time. Again, this is par for the course on these deals. It's typically nothing to worry about, but it can impact you. And so, you can't go into this like Gary, which is like, "Oh, there's a couple buyers and we sit down and they took me into to a nice dinner. I'm going to give them the deal." Well, no. Take control of this and understand it. Here at Potomac, we love to kill it for our clients. And I think that education is the cornerstone which allows our clients to make the best decisions for themselves. The more you can understand about the nuances of how strategic acquirers work, how the operations of private equity firms work, and the psychology and the tactics of an M&A transaction, the better you're going to be when it comes time to pull the trigger. If you own a business and you're being contacted by strategic acquirers, search funds, private equity firms, and you're trying to size up what you might do, take a step back and give us a call. We'll help you forge a plan, whether that exit is a year from now, 5 years from now, or 10 years from now. We'll help you think through a plan that is specifically tailored to your financial goals and objectives. So, please contact us directly. I've put a link to the contact form in the description of this video, and you can also contact me directly on LinkedIn. Again, you can click on the link below to download the questions you should ask private equity. This is a culmination of 20-plus years and billions of dollars in transaction with private equity, and these are the questions that I recommend clients ask private equity firms before they do a transaction. It's probably something you're not going to want to miss. Further, if you got value from this video, you're not going to want to miss what we have coming up here in the coming weeks. We'll be doing the valuation masterclass. We'll be kicking off the buy-side M&A masterclass, and we've got a lot more to say on private equity. And feel free to share this masterclass series with somebody who you think might benefit from it. Again, I'm Paul Jaimovich. Thank you for joining me today, and I'll see you on the next one.