A standstill agreement, often referred to as a “no-shop” or “lock-up” agreement, is a legal agreement used in mergers and acquisitions to prevent a target company from seeking other potential buyers or partners during the due diligence process.
The purpose of a standstill agreement is to provide the potential acquirer with a period of exclusivity to conduct research and analysis of the target company`s finances, operations, and other confidential information. It allows the acquirer to evaluate the target company`s value and determine whether or not to proceed with the acquisition.
The standstill agreement typically prohibits the target company from soliciting or negotiating with other potential buyers or partners for a certain period of time, usually between 30 and 180 days. During this period, the target company is bound to provide information and access to its facilities and employees when requested by the acquirer.
Standstill agreements are often used in hostile takeovers, where the potential acquirer is seeking to take over a company against its will. In these situations, the target company may seek to negotiate a higher price or better deal terms with other potential buyers or partners as a way to avoid the hostile takeover. A standstill agreement prevents these actions and gives the potential acquirer time to negotiate with the target company without interference.
In addition to the exclusivity period, standstill agreements may also include provisions that limit the target company`s ability to take certain actions, such as issuing new securities or making major operational changes, without the consent of the potential acquirer.
Standstill agreements are a common tool used in mergers and acquisitions, but they can also be controversial. Some argue that they limit competition and prevent the target company from exploring other potential opportunities. Others argue that they provide a necessary protection for potential acquirers and help ensure a fair and thorough evaluation process.
Overall, standstill agreements are an important legal tool used in mergers and acquisitions to provide a period of exclusivity and protect the interests of potential acquirers. They are a complex area of law that requires expert guidance and careful consideration to ensure that all parties involved are protected and the transaction proceeds smoothly.