Market Standoff Agreement Vs Lockup
When a company goes public and its shares are available for trading on the stock exchange, certain shareholders may be subject to restrictions on selling their shares. This is where the terms market standoff agreement and lockup come into play. Both are used to prevent certain shareholders from flooding the market with shares immediately after an initial public offering (IPO), which could cause a significant drop in the stock price.
A market standoff agreement is a voluntary agreement between the underwriters and certain shareholders to not sell any shares for a specified period after the IPO. This typically lasts anywhere from 90 to 180 days, during which time the underwriters can stabilize the stock price and create a solid market for the company`s shares. The agreement can be beneficial for both underwriters and shareholders, as it helps to ensure a stable stock price and gives the company time to prove its worth to potential investors.
On the other hand, a lockup is a legally binding agreement between certain shareholders and the company that restricts them from selling their shares for a specified period after the IPO. This period usually lasts for 180 days, but it can be longer or shorter depending on the agreement. Lockups are typically used for key shareholders, like company executives and insiders, who may have a large number of shares and could potentially flood the market if they all sold at once.
While both market standoff agreements and lockups aim to prevent a sudden drop in the stock price after an IPO, there are some differences between them. The biggest difference is that a market standoff agreement is voluntary, whereas a lockup is legally binding. Additionally, a market standoff agreement is between the underwriters and shareholders, while a lockup is between the company and certain shareholders.
In conclusion, market standoff agreements and lockups are two tools used to prevent a sudden drop in the stock price after an IPO. While they serve similar purposes, they differ in terms of their voluntary or legally binding nature and who they are between. Ultimately, these agreements can help to create a stable market for a company`s shares and give it time to prove its worth to potential investors.