A Buy-Side Model of M&A Lockups: Theory and Evidence

Posted: 19 Apr 2001

See all articles by John C. Coates, IV

John C. Coates, IV

Harvard Law School; European Corporate Governance Institute (ECGI)

Guhan Subramanian

Harvard Business School


Lockups are an increasingly important element of M&A deals in the United States. We present, for the first time, descriptive data on lockup incidence, trends, and their relationship with Delaware case law. Prior commentators have used theoretical models to argue that lockups should have little or no impact on allocational efficiency in the market for corporate control. We use data from twelve years of M&A activity in the United States to show that prior models have little predictive power in real-world transactions. We then offer a new theoretical model of lockups that includes six "buy-side" distortions: agency costs, tax effects, informational effects, switching costs, reputational effects, and endowment effects for bidders. The implications of this new model suggest that courts and corporate boards should scrutinize lockups more closely than prior commentators have advocated.

Keywords: lockup, merger, acquisition

JEL Classification: G34, K22

Suggested Citation

Coates, John C. and Subramanian, Guhan, A Buy-Side Model of M&A Lockups: Theory and Evidence. Stanford Law Review, Vol. 53, No. 2, November 2000, Available at SSRN: https://ssrn.com/abstract=263629

John C. Coates (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Guhan Subramanian

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-9784 (Phone)
617-496-7379 (Fax)

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