There’s been an increase in special purpose acquisition companies (SPAC). However, there is also a lock-up period for SPAC IPOs that differs from a traditional IPO… Lock-Up Period for SPAC IPO vs. For example, many companies now opt to go public via SPACs. Less traditional IPO methods have become increasingly popular in recent years. Instead, a lock-up period is usually self-imposed by the company undergoing an IPO or required by the underwriters of an IPO. You should know that IPO lock-up periods aren’t mandated by the SEC or any other regulatory body. However, the government requires foreign companies listing in the U.S. In the U.S., companies going public file an S-1. You can search for public company filings on the SEC.gov website. It gives deep insight into the company that’s going public. This is a filing with the Securities and Exchange Commission (SEC). You can find this info in a company’s prospectus. You should determine whether the company has a lock-up and when it expires before investing in a company that has just gone public. Here’s where you can find the details for a lock-up agreement… Finding Lock-Up Agreement Details To reduce selling pressure and flooding the market, investment banks that underwrite the IPO typically require a contractual lock-up period. For example, a major shareholder selling their holdings right after the company’s debut could cause its stock price to fall. As a result, they may be more inclined to sell their stocks after an IPO, which could harm the company’s success. Typically, inside investors buy their shares at a lower price than the IPO price. By making the earlier investors wait, there’s more time for the share price to stabilize in the market.Ī lock-up period also prevents investors from flooding the market with too many shares when a company goes public. This is because a stock is usually highly volatile for the first few months after a public offering. The IPO lock-up period reduces selling pressure. So, before investing, it’s good to read the fine print… Why Use Lock-Up Periods? Although, each deal is a little different. Most trading restrictions are lifted after the IPO lock-up period is over. You’ll often see lock-up periods between 90 and 180 days. In addition, it can apply to venture capitalists and other pre-IPO investors. In other words, the shares are “locked up.” This usually applies to a company’s founders, owners, managers and employees. They’re important for investors to consider… What is an IPO Lock-Up Period?Īn IPO lock-up period prevents company insiders from selling their shares for a period of time. Then below that, you’ll find where to find lock-up agreement details, as well as why they’re used. To start, let’s look at a short definition for IPO lock-up periods. These are in place to protect investors and provide some trading stability. Traditional IPOs come with a wide range of trading rules and restrictions. When it comes to investing in recent IPOs, it’s useful to know about IPO lock-up periods.
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