Standstill Agreement

A standstill agreement is a contract in which a party agrees not to take certain actions — typically not to acquire additional shares, not to launch a proxy contest, not to make a public bid, and not to seek board representation — for a defined period. Standstill provisions most commonly arise in M&A negotiations when a potential acquirer receives confidential information from the target under an NDA: in exchange for access to the data room, the acquirer commits to a standstill that prohibits it from making aggressive moves against the target if negotiations fail.

Standstills serve a critical function in allowing M&A negotiations to proceed in a controlled manner. Without a standstill, a potential acquirer who enters a data room, gains deep insight into the target's operations and finances, and then decides not to buy on agreed terms could immediately launch a hostile bid using the knowledge gained. The standstill prevents this outcome — it is the price of access to confidential information.

In process M&A (sellside auction processes run by investment banks), standstills are typically included in the NDA sent to all prospective bidders. The standstill period usually runs 12–18 months, and often includes a carve-out allowing the restrained party to respond to an unsolicited third-party bid (so the standstill does not prevent the party from participating in an auction initiated by someone else).

The question of whether standstills contain a "don't ask, don't waive" (DADW) clause has become a major point of litigation in Delaware. A DADW standstill prevents the restrained party from even asking the target to waive the standstill — effectively keeping competing bidders quiet during the controlled process. Delaware courts have sometimes found DADW clauses inequitable when they prevent shareholders from receiving the benefit of a higher competing bid.