With the rise of alternative public structures – including direct listings and target acquisition companies (SPAC) and the willingness of investment banks to be more flexible to enable companies to design locking structures tailored to their needs – we have seen in recent years a change in the terms of the lock-up agreements. The lock-in agreements are designed to protect investors. The lockout agreement aims to avoid a scenario in which a group of insiders makes a company public overvalued and rejects it on investors and runs away with profits. Those considering investing in the business should determine the length of the prohibition period. This is because insiders who sell part of their shares can put downward pressure on the company`s stock. A first sale period (IPO) is a contractual provision that prevents insiders who already hold shares from selling them for a certain period of time after the IPO. Although the waiting time varies from case to case, it usually varies between 90 and 180 days. Investors should also keep in mind that the Destination Acquisition Company`s (SPAC) IpOs ban period is generally longer. Lock-ups for SPAC IPOs typically take 180 days to a year.
It is interesting to note that some of these studies have found that staggered locking agreements may actually influence an action in a more negative way than those with a single expiration date. This is surprising, as staggered locking chords are often seen as a solution for post-lock-up dip. The lockout agreement helps reduce the pressure of volatility when the company`s stock is in the first few months. It is only after the expiry of the prohibition period that insiders can sell freely. A blocking agreement is a contractual clause that prevents a company`s insiders from selling their shares for a specified period of time. They are often used in the IPO. The blocking phase of the IPO also has interesting effects on the options market. Options are not available on the day of the IPO. However, they are often available to large and even mid-sized companies before the EXPIRATION of the IPO ban period. If investors are nervous about a possible stock drop after the lockdown expires, they may be able to buy protective puts.