How is the management's ownership stake in a post-LBO company calculated?

The management's ownership stake in a post-LBO (Leveraged Buyout) company is calculated by dividing the rollover equity amount by the sum of the rollover equity amount and new equity. This method reflects the proportion of ownership that management retains after the buyout in relation to the total equity in the company.

To break this down, the rollover equity amount represents the portion of the equity that the management or previous owners choose to retain after the buyout. New equity is introduced by the investors looking to fund the acquisition. By combining both the rollover equity and new equity, you get the total equity that results after the LBO. The formula provides a clear and precise method to determine how much ownership management has retained compared to the new ownership structure established post-buyout.

Using this calculation, one can see how much of the company management still controls relative to the new investors, which is crucial for assessing both their stake and influence in the company's future operations.