What is a post-closing lock-up provision?
A post-closing lock-up provision is often requested by the buyer when the buyer is using its stock as consideration for the purchase. Such a provision requires those who are covered by it to hold the stock they receive in the transaction for some period of time. In the past, such provisions were largely driven by accounting issues. Buyers also often request such provisions to ensure that adequate consideration is in place during the representation and warranty period should the buyer wish to make a claim against a significant seller for a breach of representations and warranties or to ensure management of the acquired company has skin in the game after the acquisition. Public companies often use a post-closing lock-up when the number of shares issued in the acquisition constitutes a large percentage of the outstanding shares or if the trading volume in its stock is low. The goal is to prevent sales from decreasing market price or to give assurance to the market that a larger number of
