When the Seller Also Becomes an Investor: Reinvestment and Buy & Build

If you sell to a private equity fund or another professional investor, it's not always a question of selling everything and moving on. A growing share of deals in this segment are instead structured so that you, as seller, reinvest part of the proceeds and continue as a co-owner of the business going forward.

What is a buy & build strategy?

Buy & build is a model where an investor — typically a private equity fund — buys a solid "platform business" and then uses it as a base for acquiring and folding several smaller businesses under the same umbrella. The purpose is to create growth and economies of scale faster than any of the businesses could have achieved alone.

Why do sellers reinvest part of the proceeds?

Many private equity funds make it a direct condition of the deal that you, as seller, reinvest part of your sale amount in the continuing business. It signals that you still believe in the business's future, and it aligns your interests with the investor's — you largely win or lose together on the further development.

What do you, as seller, get out of reinvesting?

• Continued upside: If the buy & build strategy succeeds, your reinvested stake can rise significantly more in value than if you'd taken out the whole proceeds and invested it elsewhere.
• Continued influence: As a co-owner, you typically retain some influence over the business's development, albeit often to a lesser extent than when you were sole owner.
• A softer transition: For many owner-managers, it's psychologically easier to let go gradually than to leave the business entirely from one day to the next. See also our article on the emotional side of selling your business.

What's the risk of reinvesting?

Your reinvested stake isn't a guaranteed gain — if the buy & build strategy doesn't go as planned, or further growth requires more capital than originally assumed, the value of your stake can fall, just like with any other investment. You should therefore never reinvest more than you can genuinely afford to lose, no matter how convincing the investor's growth plans sound.

What should you clarify before agreeing to reinvest?

• Your actual influence going forward: Which decisions do you still have a say in as a minority owner?
• The exit terms for your stake: When and how can you sell your reinvested stake again yourself — typically when the investor themselves exits the business further down the line?
• How the return is calculated: Is there an agreed distribution key between the investor and reinvesting sellers at a future exit?

Is this model relevant for all types of business sales?

No — buy & build and reinvestment are primarily relevant for sales to professional, well-capitalized investors with a growth strategy, typically in larger business deals. If you're selling to a private buyer or a smaller business without a dedicated acquisition strategy, the model is rarely relevant.

Frequently asked questions

Am I obligated to reinvest if I sell to a private equity fund?

Not always, but many private equity funds make it a condition of the deal, precisely to ensure your interests are aligned going forward.

Can I lose money on my reinvested stake?

Yes. Your stake is an ordinary investment in the continuing business and carries the risk that entails — the value can rise and fall depending on how the buy & build strategy plays out.

When can I sell my reinvested stake again?

It depends on the specific agreement, but typically only when the investor themselves chooses to sell the entire platform on — get this clarified before you reinvest.

Considering a deal with a private equity fund or professional investor? Book a no-obligation call if you'd like sparring on whether reinvesting makes sense for you.