CEU Electronic Theses and Dissertations, 2020
| Author | Qimatshoeva, Qargizmo |
|---|---|
| Title | Private Equity and Investors' Exit Rights: An Analysis of 'Tag Along' and 'Drag Along' Clauses |
| Summary | This thesis focuses on the role and importance of tag along and drag along clauses-based exit strategies play for private equity firms appearing in the shoes of investors, from the perspective of US law, both federal and the laws of the various States. The main goal of the private equity investors is to make an investment into a promising investee firm, to which institutional banks do not give a loan, with the expectation of future returns. Often, they form a special purpose vehicle (SPV) typically in the form of limited partnership, through which they invest money into the investee firm to limit their liability. The investments are always made for a limited period time. Consequently, it is essential for private equity firms to easily exit the investment, possibly with profits or with minimal losses. Generally, there are more avenues to exit, simpler and more complex ones, from initial public offerings (IPO) and secondary sales – where the private equity investor decides to sell the business to a different investor , to trade sales – where the company is sold to another company, often to bigger corporations seeking “market share”. The thesis is, however, devoted to exit through tag along and drag along clauses within the context of the US law, as a jurisdictions possessing mature laws on and ample experiences with these. The analysis aims, on the one hand, to critically asses what dilemmas and other practical issues faced by investors when applying them, and on the other hand, to propose possible solutions for the detected problems. The result of the research denotes that though there are several ways to exit the investments, tag along and drag along clauses are considered to be the most effective and straightforward routes because they create balance between the interest of the majority stockholders in the company and the interest of the minority. Moreover, they prevent emergence of deadlocks and abuses of the rights of any party, as well as are tools for achieving the parties’ exit goals. Whenever the majority or the minority decides to sell its stake, the majority drags along the minority stockholders to exit, by forcing them to similarly, sell their stocks to a different investor on the same terms, at the same time. Whereas if the majority stockholders decide to sell their stake, the tag along clause grants the right to the minority shareholders to participate in the transaction and sell its stocks at the same terms, at the same price, thus obliging the third party to buy the minority stocks as well. Therefore, the tag along and drag along clauses shall be taken into consideration by the private equity investors. |
| Supervisor | Tibor Tajti |
| Department | Legal Studies LLM |
| Full text | https://www.etd.ceu.edu/2020/qimatshoeva_qargizmo.pdf |
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