What is a Standstill Provision?
A standstill provision is a contractual agreement where a potential buyer agrees not to take certain hostile actions against a target company for a specified period. In the context of M&A, standstill clauses are typically embedded in or attached to confidentiality agreements and serve to protect the seller from having confidential information used to facilitate an unwanted takeover.
The fundamental logic is straightforward: if a seller provides detailed financial, operational, and strategic information to a potential buyer, that buyer gains a significant advantage if they later decide to pursue a hostile acquisition. The standstill provision prevents the buyer from leveraging this informational advantage to bypass the seller's board.
Without a standstill, a buyer could use due diligence to identify weaknesses, understand valuation, and gather intelligence - then terminate negotiations and launch a hostile bid at a lower price, directly to shareholders.
Standard Standstill Restrictions
A comprehensive standstill provision typically prohibits the buyer from taking any of the following actions during the standstill period:
- Share Acquisition: Acquiring, offering to acquire, or agreeing to acquire any securities of the target company, whether through open market purchases, private transactions, or derivative instruments.
- Tender Offers: Making or participating in any tender offer, exchange offer, or similar transaction targeting the company's securities.
- Proxy Contests: Soliciting proxies, consents, or authorizations from shareholders, or participating in any "solicitation" under proxy rules.
- Board Nominations: Seeking board representation or nominating directors without board approval, including submissions to nominating committees.
- Group Formation: Forming, joining, or encouraging the formation of any "group" (under Section 13(d) of the Exchange Act) with respect to the company's securities.
- Public Statements: Making public announcements regarding any intention to take the above actions, or publicly disparaging the company or its board.
- Waiver Requests: Requesting, proposing, or inducing the company to waive or amend the standstill provisions (sometimes included, highly seller-favorable).
Types of Standstill Provisions
Absolute Standstill
No exceptions or triggers. The buyer is bound for the full term regardless of seller's actions. Maximum protection but may deter buyers.
Seller-FavorableStandstill with Fall-Away
Restrictions terminate or relax upon specified trigger events, typically involving third-party transactions or public announcements.
Balanced"Don't Ask, Don't Waive"
Buyer cannot even request a waiver of standstill. Prevents private pressure on board while maintaining public appearance of no interest.
Seller-FavorablePrivate Request Permitted
Buyer may privately request waiver, but cannot publicly announce interest without board consent. Allows dialogue while protecting seller.
Buyer-FavorableStandstill Duration and Timeline
Standstill periods typically range from 12 to 24 months, with 18 months being common in middle-market transactions. The duration should balance seller protection against buyer flexibility:
Typical 18-Month Standstill Timeline
| Deal Size | Typical Duration | Notes |
|---|---|---|
| Under $100M | 12 months | Shorter periods acceptable; less hostile takeover risk |
| $100M - $500M | 12-18 months | Standard range; negotiate based on strategic value |
| $500M - $1B | 18 months | Increased protection warranted; more buyer scrutiny |
| Over $1B | 18-24 months | Maximum protection; expect heavy negotiation |
Fall-Away Triggers
Buyers frequently negotiate "fall-away" provisions that terminate or relax standstill restrictions upon occurrence of specified events. Common triggers include:
Third-Party Transaction Triggers
- Public announcement by the company of a definitive agreement with a third party
- Commencement of a tender offer by a third party that the board does not reject within a specified period
- Company enters into exclusive negotiations with a third party
- Shareholder activist accumulates a specified percentage of shares
Company Action Triggers
- Company publicly announces willingness to explore strategic alternatives
- Company files a proxy statement recommending a transaction with a third party
- Material change in board composition (e.g., majority of independent directors replaced)
Sellers should resist triggers based on private actions (like entering into confidential discussions with other parties). Require public announcements before standstill falls away, or the buyer could use information about competing discussions to their advantage.
Example Standstill Language
Strategic Considerations for Sellers
When to Require a Strong Standstill
- The buyer is a competitor who could weaponize disclosed information
- The company is in a vulnerable position (recent stock decline, activist pressure)
- Management is concerned about job security post-acquisition
- The board wants to run a controlled auction process
- There are significant trade secrets or customer relationships at risk
When to Accept a Weaker Standstill
- Need to attract more bidders to maximize value
- Financial sponsor buyer with no competitive concerns
- Company actively seeking sale (standstill contradicts market messaging)
- Buyer has significant leverage or is only credible purchaser
Delaware courts have scrutinized "don't ask, don't waive" provisions in the context of fiduciary duties. Boards should ensure they retain ability to consider superior proposals and document their reasoning for standstill terms in meeting minutes.
Buyer's Perspective and Negotiation
From the buyer's perspective, standstill provisions represent a significant constraint on strategic flexibility. Buyers should focus negotiation on:
- Duration: Push for shorter periods (12 months vs. 24 months).
- Fall-Away Triggers: Ensure the standstill terminates if seller entertains other offers.
- Private Communication: Preserve right to privately request waiver or express continued interest.
- Defensive Actions: Carve out the right to respond if a third party launches a hostile bid.
- Group Formation: Narrow the definition to avoid inadvertently triggering violations through normal business relationships.
For comprehensive seller protection strategies, see our Seller-Side NDA guide. For data access controls that complement standstill provisions, see Data Room Access NDA.