A tag-along, drag-along clause is less a control mechanism for private equity firms and more a tool to tie portfolio manager interests to the portfolio companies. The clause gives portfolio managers the right to obtain an equity stake in the portfolio companies should the private equity firm decide to dispose of its holding.
Priority in claims and board representation are both effective tools that give PE firms greater control over portfolio companies. Priority in claims allows the PE firm to receive distributions before all other owners. Should the portfolio company experience a major event (bankruptcy, restructuring, IPO, etc.), the private equity firm can gain control of the company through board representation. |
