The Second Bite at the Apple

Most M&A deals end with a wire at closing, a few months of transition support, and a handshake goodbye. Some collision repair deals end differently. The buyer asks you to take a portion of your closing proceeds and invest it back into the new company, staying on as a minority equity holder. That piece is called rollover equity. It is widely misunderstood, and its terms can shape both your financial outcome and your role after the sale.

Rollover equity shows up in two situations. The first is a rollover offered by a buyer already established in the industry, usually when a smaller operation is folded into one it already runs. A few years ago one of our clients was offered the chance to roll part of his proceeds into Classic Collision, his acquirer. In that situation the terms are modest, the stake is usually optional, and little is expected of you afterward.

This article is about the second situation: a rollover required when a private equity firm makes its first investment in collision repair and builds a new platform around your business. Here the firm is co-investing in you and your platform for growth, so the rollover is a condition rather than an option. The stake is far larger, often 20 to 30 percent, with shareholder terms that are negotiable, and it comes with a real, multi-year commitment to stay and grow the business until the platform is sold again. This is the more consequential rollover of the two, and it deserves careful analysis.

Why a buyer requires it: the private equity playbook

A private equity firm that bets on collision repair is making a deliberate wager on an industry it sees as durable, fragmented, and consolidating. It expects to profit two ways: by improving the business (stronger margins) and by building something far larger than the pieces it buys (more total profit, and a higher multiple on it). Capital alone is not enough to do that. The firm needs the platform leader to stay and grow it. Requiring rollover equity secures that alignment, because your second bite depends on the same success the firm is chasing. For its part, the firm bolts on shop after shop, using each acquisition to validate and scale the platform model.

Arbitrage is the keystone of most consolidation strategies: buy a group of smaller companies at low multiples, put them on a common platform, and exit at a much higher multiple. Collision repair has been consolidating for three decades, with more private equity firms invested in the industry today than ever before. The national shop count has fallen from more than 50,000 a generation ago to around 30,000 today. The four largest consolidators (Caliber, Gerber, Crash Champions, and Classic Collision) now control about a third of industry revenue, with a tier of smaller private-equity-backed buyers growing behind them and others still looking for their first investment.

Capital can buy paint booths and frame machines. What it cannot manufacture is the owner’s local relationships with insurance carriers, reputation in the regional market, ability to attract and develop talent, and the operating skill that keeps shops profitable long after the wire clears. So private equity follows a consistent playbook. It acquires a platform led by a strong operator with a track record and a thesis for growth; it secures that leader by requiring a rollover; and it helps grow the platform with additional capital, scaling expertise, and support systems. The playbook works best in a large, fragmented market, where smaller shops can be bought at lower multiples than the assembled platform will eventually command, so the firm sees a clear path to selling for more later.

Crash Champions is a live example. Alvarez & Marsal backed founder Matt Ebert in 2019 when he ran eight shops, and kept him as leader as the platform grew past 200 locations. Clearlake recapitalized it in 2022 and merged it with Service King. Ebert still runs it today. With more than 650 locations, Crash Champions is the largest founder-led MSO in the country. For an owner who rolls, the opportunity is a payday at the initial sale and a second bite when the platform sells again, a ride Ebert has taken more than once.

The two bites, defined

The first bite is the cash paid at closing. The second bite is the value of your rolled equity at the platform’s next liquidity event, a sale or a recapitalization, typically four to six years out. (Non-traditional investors such as family offices and high-net-worth individuals often work on a longer clock.) A recapitalization, or “recap,” is a deal in which the business takes on new investment or new ownership, often a larger private equity firm or consolidator, and returns cash to everyone holding equity. For owners who rolled, the recap is usually when the second bite is paid, and they are sometimes invited to roll again into the next chapter. The rolled portion is normally structured so that tax on it is deferred until that event, while the cash taken at closing is taxed now.

Unlike the cash you receive at closing, what you ultimately receive for your rolled equity depends on the platform’s future performance, and it could be worth little or nothing. What separates a large second bite from a disappointing one is how much the platform grows in value before its next sale.

Multiple arbitrage is the engine

A platform is often worth far more than the shops inside it because of a simple gap in how businesses of different sizes are valued. A single shop, sold on its own, might trade at 4X EBITDA. A small MSO might change hands at 5 to 7X. A large, professionally run platform with dozens of locations, clean financials, and a capable team can trade at a double-digit multiple. Buyers pay more for each dollar of earnings when it comes with scale.

That premium is what private equity sets out to capture. It buys your shop and others like it at single-digit multiples, combines them under one management team, adds organic growth and process to lift margins, uses debt to stretch its own equity further, and then sells or recapitalizes the assembled business a few years later at a double-digit multiple on a much larger pool of EBITDA. Joe Hudson’s Collision Centers is the clearest example in our industry. It changed hands with 23 shops in 2013, again with 110 in 2019, and once more with 258 when Gerber acquired it in a deal announced in late 2025. Each owner along that chain handed the next a larger, more valuable company, and every step was a payday for the people holding equity.

What the second bite can look like

The chart below puts the arbitrage to work with round numbers. This is the simple version: one class of stock, meaning you and the firm hold the same shares, and no new equity after closing.

The debt does not get paid down along the way. Most debt a private equity sponsor puts on a platform is close to interest-only, typically amortizing around 1 percent a year with the balance due at maturity. The cash the shops generate goes to interest, capital expenditures, and corporate overhead, which grows with the platform. The $45M comes off the top at the recap, before any shareholder is paid.

In the simple version above, a rolled stake rides the same return as the deal. At the recap the money comes out in order. The $45M of debt is repaid first, leaving $189M of equity value. With one class of stock, that $189M is split by ownership, and your 25 percent comes back as $47.3M. Added to the $40.5M taken in cash, the two bites total $87.8M, against the $54M you would have received selling outright. The deal turned $54M of equity into $189M, 3.5X. Your roll turned $13.5M into $47.3M, the same 3.5X.

What comes out before your share does

Owning 25 percent of the platform does not usually mean collecting 25 percent of what it earns each year, or 25 percent of what it ultimately sells for. Several things come out ahead of you, at the exit and during the hold. The example above uses one class of stock, so once the debt is repaid the equity is split by ownership. In most deals with a private equity fund, the firm’s capital is preferred: it pays out first, with a set annual return on top, and the shareholder agreement decides how much of the second bite reaches you once it does. True equal footing, or “pari passu,” is rare in this industry, though it can be negotiated. The more useful question is how much is left after the firm’s capital and preferred return are paid, and in which outcomes. Your share can also shrink. If the firm puts in more equity later, for acquisitions it cannot fund with debt alone, you will be diluted unless you invest alongside it.

Now take the same deal with the firm’s capital preferred. The $45M of debt still comes off the top, so the equity value is the same $189M. The firm’s $40.5M comes back next, plus a preferred return, here 8 percent compounding per year, about $60M in all, before your roll shares in anything. Only then is the remaining $129M split by ownership, and your 25 percent comes back as $32.3M. Paying the firm first cost you $15M. The two bites total $72.8M, against $87.8M with one class of stock. The deal still turned $54M of equity into $189M, 3.5X. Your roll turned $13.5M into $32.3M, about 2.4X. The two scenarios below use this structure, with your roll behind the debt and the firm’s preferred capital. The only thing that changes is how the platform performs.

Here is a middle case. The firm’s capital and preferred, about $60M, come out first. A platform’s return is measured as a multiple of invested capital, or MOIC: dollars out for every dollar in. If the platform does well and doubles its equity, a 2.0X MOIC or $108M, your 25 percent of what is left comes back as $12M, short of the $13.5M you put in. The deal doubled its money and your roll lost money. The preferred return does far more to your second bite than any fee does, and whether there is anything left over at all comes down to how the platform performs.

During the hold, the cash the shops generate is spoken for. It covers interest on the debt, capital expenditures, and corporate overhead, which grows with the platform and varies widely with its size and growth plans. Many sponsors also charge the company an annual management fee under a management services agreement, usually a fixed amount or a few percent of EBITDA. Even where the sponsor credits that fee against what its own investors pay, the money still leaves the company, which means it comes out of every shareholder’s pocket, including yours. On the $15M of EBITDA the platform starts with, a 3 percent fee is $450K a year, gone before anyone sees a distribution. In practice, little or nothing is distributed to shareholders during the hold. The second bite is paid at the recap.

Your partner can also take money off the table before the exit through a dividend recapitalization. The company borrows against its cash flow and pays the proceeds out to shareholders. If the firm’s capital is preferred, that cash goes to it first, and the new debt stays on the company’s books and comes off the top at the next sale. Caliber did a version of this in early 2024, raising about $4.6B of new debt with part of the proceeds paid out as a dividend. It is a normal tool in private equity, and it is one the sponsor controls and the minority holder does not.

What it comes down to

Whatever the structure, a rollover is equity, not cash. It is illiquid, at risk, and a minority position, so the outcome rides on execution and timing, neither of which a minority shareholder can do much about.

So if you have received an offer that includes equity, understanding who is buying you is as important as the price they are offering. Look closely at who actually stands behind the name, how much capital they are putting in, and where they sit in their own four- to six-year timeline. Just as important are the questions a term sheet cannot answer: do you like and trust them, have they scaled and successfully exited businesses in other industries, and are they aligned with your vision for the business and the direction of the industry?

Most owners will sell to an established consolidator or a local buyer rather than to an investment firm making its first acquisition in collision repair. That does not take rollover off the table. Buyers already established in the industry offer equity too, usually in smaller amounts and for different reasons: to keep a strong operator and management team in place after closing, to bridge a valuation gap on a deal they want, or simply as currency when the buyer is young and growing fast. That stake is rarely required and often is not in the first offer. It usually has to be asked for, and you take shares under a shareholder agreement that already exists, with little say over how it is structured. The order of payment and the fees described above apply there too, and the stake deserves the same scrutiny.

In a private equity platform deal, the rollover is not a footnote to the sale. It is a second investment and a real partnership that can matter as much as the cash, so the buyer and the terms deserve the same scrutiny as the price. Done well, the stake you roll can become one of the most valuable parts of the deal, but only if the buyer and the terms are right. Whether you are weighing a small stake from an established buyer or a required roll into a first-time private equity platform, three things decide the outcome: who stands behind the buyer, where your equity sits in the order of payment, and what comes out of the business before anything reaches you. It is worth talking through with someone who has sat across from these buyers for years.