Ratchet, Tag along and drag along

[saurya_s]

Hi all,
What are these terms -
Ratchet, Tag along and drag along
Thanks

 

[cfaboston28]

Ratchet: A ratchet is a way of increasing or decreasing a private equity house’s or venture capitalist’s shareholding based on the non-achievement or achievement of agreed performance targets.
TADA: The right assures that if the majority shareholder sells his stake, minority holders have the right to join the deal and sell their stake at the same terms and conditions as would apply to the majority shareholder. This right protects minority shareholders.Tag-along rights are fairly standard terms in shareholders agreements.

 

[deriv108]

Don’t have book at hand.
Is Ratchet is a benefits to portfolio manager?
What is the difference between tag along and drag along. It seems that tag along is an option while drag a long an obligation. It describes a relation between relation between LP(investor) and GP(PE fundmanager), right?

 

[TheAliMan]

Man cfaboston, you are on fire with this PE stuff. Can I borrow your brain, please and thank you?

 

[wangta01]

Tag along benefits the management team of the portfolio company - gives them an option to either 1) sell their minority stake should the majority shareholder (private equity company) sell their stake (tag along - can sell with the pe company), or 2) buy the majority stake from the PE company.
Drag along - benefits PE company, allows them to force minority shareholder to sell if they decide to sell their majority stake - would apply if buyer wanted entire equity.

 

[lzhao]

Is ratchet an english word? what does it mean in english?

 

[cpk123]

ratchet and pinion - hope you have heard that term - kind of gearing mechanism (cars mechanical gears).

 

[deriv108]

Does ratchet move in only one direction? CFA got me for words like this.

 

[Dreary]

Tag along, as I read it, it referred to teh right of management team to stay with the company should someone else acquire it..its a stipulation for protecting the management team. But I like the definitions I’m hearing here better.