The Insidious Put


Increasingly, private equity funds are requiring that portfolio companies, in which the PE fund has invested, give the PE fund the right to “put” their investment to the portfolio company under certain conditions, including upon, and simultaneous with, certain changes of control. Seems harmless enough, right? Well, not so fast. Upon closer inspection, that put effectively creates a scenario where the PE fund is able to unload its ownership interest in connection with certain sales of that portfolio company, perhaps without having to be a party to the transaction documents. This is a perfect scenario for a PE fund (well, really, for anyone!); like being cashed out of a portfolio company investment with none of those pesky, lingering post-closing liabilities (e.g., indemnity claims, purchase price adjustments, and the like) associated with the sale, thereby completely avoiding, for example, a potential, years’ later request that the PE fund (and, by extension, its investors) give back some of the sale proceeds.

Some might say: “Where’s the harm?”

Well, what if there is another investor in that portfolio company? Based on simple math, it would appear that the other investor is potentially on the hook for a now disproportionate share of the post-closing liability, in effect, picking up a portion of the post-closing liability that would have otherwise been allocated to the now cashed out (i.e., via the put) PE fund. Not such a great outcome for that other investor.

That’s not all. What if a portfolio company neglects, or believes there is no need, to advise the other investors about the put (and the corresponding potential disproportionality), with the portfolio company thinking: “What’s the big deal?” In the absence of appropriate disclosure, the other investor may have, in effect, invested in a different security than the one advertised by the portfolio company. As a result, the portfolio company may have set itself up for a securities fraud claim (at a minimum!) by the other investor.

The publications contained in this site do not constitute legal advice. Legal advice can only be given with knowledge of the client's specific facts. By putting these publications on our website we do not intend to create a lawyer-client relationship with the user. Materials may not reflect the most current legal developments, verdicts or settlements. This information should in no way be taken as an indication of future results.

Search Tips:

You may use the wildcard symbol (*) as a root expander.  A search for "anti*" will find not only "anti", but also "anti-trust", "antique", etc.

Entering two terms together in a search field will behave as though an "OR" is being used.  For example, entering "Antique Motorcars" as a Client Name search will find results with either word in the Client Name.


AND and OR may be used in a search.  Note: they must be capitalized, e.g., "Project AND Finance." 

The + and - sign operators may be used.  The + sign indicates that the term immediately following is required, while the - sign indicates to omit results that contain that term. E.g., "+real -estate" says results must have "real" but not "estate".

To perform an exact phrase search, surround your search phrase with quotation marks.  For example, "Project Finance".

Searches are not case sensitive.

back to top