A standstill agreement, in the context of public mergers and acquisitions (M&A), is a legal framework that restricts potentially acquisitive parties from making moves to acquire or take over a company for a specified period of time. In other words, it is a contractual agreement that allows the target company to continue with its business operations without the threat of a hostile takeover.
Why is a Standstill Agreement Important in Public M&A?
In public M&A transactions, the acquirer often tries to gain control of the target company by acquiring a majority share in the company, often through a tender offer or a hostile takeover. However, this can result in the target company`s management and shareholders feeling vulnerable and uncertain about their future.
This is where a standstill agreement comes into play. A standstill agreement can give the target company the time and space it needs to assess the acquirer`s bid and explore other options, without having to worry about being taken over by the acquirer.
The agreement usually provides for a “standstill period,” which is a predetermined period of time during which the acquirer is prohibited from acquiring additional shares in the target company, launching a tender offer, or engaging in any other activity that could be construed as a hostile takeover attempt.
Benefits of a Standstill Agreement
A standstill agreement provides several benefits to the target company, including:
1. Time to evaluate the offer: A standstill agreement gives the target company the time it needs to evaluate the acquirer`s offer and consider other options, such as seeking out alternative acquirers or pursuing other strategic initiatives.
2. Protection against hostile takeover: The standstill agreement creates a shield against hostile takeover attempts, enabling the target company to maintain its independence and continue its business operations as usual.
3. Increased leverage: The agreement can provide the target company with more leverage in negotiations with the acquirer, enabling it to achieve better terms and potentially higher valuation.
4. Avoiding disruptions: A standstill agreement can help mitigate disruptions in the market and prevent the target company`s employees, suppliers, and customers from being adversely affected during the acquisition process.
Conclusion
In conclusion, a standstill agreement is an important legal tool in public M&A transactions that serves to protect the interests of target companies. By creating a temporary “no-poach” period, it can provide the target company with the time and breathing space needed to assess acquisition offers, explore alternatives, and engage in negotiation with the acquirer on more favorable terms. As such, it is a valuable instrument for any company that is considering or undergoing an M&A transaction.