What Is The Purpose Of Ipo Lockup Agreements

Details of a company`s blocking agreements are always disclosed in that company`s prospectus documents. These can be insured either by contacting the Company`s investor relations department or by using the Securities and Exchanges Commission`s (SEC) Electronic Data Gathering, Analysis and Retrieval (EDGAR) database. Interestingly, some of these studies have found that multi-level blocking agreements can actually have a more negative impact on a stock than those with a single expiration date. This is surprising because multi-level lock-in agreements are often seen as a solution to post-lock down. If you plan to invest in a company that has recently gone public, you need to determine if the company has a lock and when it expires. This is important information because a company`s share price can fall in anticipation of the sale of shares stuck in the market after the end of the lockout. An initial public offering (IPO) lock-up period is a contractual provision that prevents insiders who already have shares from selling them for a certain period of time after the IPO. Although the waiting period varies from case to case, it is usually between 90 and 180 days. Investors should also note that the lock-up period for SPECIAL Purpose Acquisition Companies (PSPC) IPOs is generally longer. Freezes for PSPC IPOs typically take from 180 days to a year. With the advent of alternative listing structures – including direct listings and special purpose acquisition companies (SSCs) – and the desire of investment banks to be more flexible when it comes to allowing companies to design lock-in structures tailored to their needs – we have seen a shift in the terms of blocking agreements in recent years. Blocking agreements are of concern to investors because conditions can affect the share price. After the blockades expire, people subject to restrictions are allowed to sell their shares.

If a significant number of insiders give up, it can lead to a drastic drop in the share price. Although blocking agreements are not required by federal law, underwriters often require executives, venture capitalists (VCs) and other company insiders to sign blocking agreements to avoid excessive selling pressure in the first few months of trading after an IPO. .