This article posted to our partner site Mondaq.com discusses the practice of including “drag-along” rights in term sheets.
Drag-along rights can be used by investors to compel shareholders subject to the agreement, to agree in advance to participate in a future acquisition of the company.
Following a decision in the Omnicare case by the Delaware Supreme Court, potential investors are advised to negotiate drag-along rights at the time of the investment, not at the time of the acquisition. This gives the investors important protection and certainty that they will be able to exit the investment in the future, as future buyers will also want assurance that the acquisition transaction will be completed before they offer their best price.