Lockup Structures in SPAC Mergers

Last updated: May 20, 2026

What Lockups Are and Why They Exist

A lockup is a contractual restriction that prevents certain shareholders from selling their shares for a defined period following a de-SPAC merger closing. Lockups exist to solve a fundamental problem in SPAC transactions: the day a merger closes, a substantial portion of the outstanding equity is held by parties who acquired their shares at deep discounts to the public market price. Without selling restrictions, these insiders could immediately liquidate, cratering the stock and destroying value for public shareholders who voted to approve the deal.

The mechanics are straightforward. The merger agreement or ancillary lock-up agreements specify which shareholders are restricted, for how long, and under what conditions the restrictions may lapse early. Violations typically trigger contractual remedies rather than securities law penalties, though the agreements are filed as exhibits to the proxy statement or S-4 registration statement and become part of the public record.

Lockups serve three overlapping functions. First, they signal alignment — insiders who cannot sell are economically tied to the long-term performance of the combined company. Second, they manage supply — restricting a large block of shares from hitting the market prevents a technical overhang that could depress prices independent of fundamental value. Third, they satisfy regulatory expectations — the SEC has increasingly scrutinized SPAC transactions, and robust lockup provisions demonstrate good governance.

Standard Lockup Periods

The conventional lockup period in SPAC mergers is 180 days (approximately six months) from the closing of the de-SPAC transaction. This mirrors the standard IPO lockup period that investment banks have imposed in traditional initial public offerings for decades, and the parallel is intentional — a de-SPAC merger is functionally an IPO for the target company, and market participants expect comparable restrictions.

However, SPAC lockups frequently deviate from this baseline. Some transactions impose 365-day lockups, particularly for sponsor shares. Others use shorter windows of 90 or 120 days for certain cohorts. The specific terms are negotiated as part of the overall merger agreement and reflect the relative bargaining power of the parties involved.

In the CCIV (Lucid Motors) transaction, for example, the sponsor and certain Lucid insiders were subject to lockup periods that extended well beyond the standard 180 days, reflecting the high-profile nature of the deal and the desire to demonstrate long-term commitment. Conversely, some PIPE investors in that transaction negotiated shorter restrictions, reflecting their leverage as providers of committed capital.

Price-Based Early Release Triggers

Most SPAC lockup agreements include price-based early release provisions that allow restricted shareholders to sell before the full lockup period expires if the stock trades above specified thresholds. These provisions balance the protective function of lockups against the practical reality that a sustained high stock price suggests the market has absorbed the post-merger supply dynamics.

A typical early release trigger requires the stock to trade above $12.00 per share for any 20 trading days within a 30-trading-day period. Some agreements use higher thresholds — $15.00 or even $18.00 — and some require longer sustained trading periods. The $12.00 level is significant because it represents a 20% premium to the standard $10.00 SPAC trust value, indicating that the market has decisively priced the combined company above the pre-merger floor.

DKNG (DraftKings) illustrates the practical impact of these triggers. The stock surged well above early release thresholds following the merger close in April 2020, driven by the broader sports betting legalization wave. Insiders who might otherwise have been locked up for six months were able to begin selling within weeks, contributing to the significant trading volume that characterized the stock's early post-merger period.

The interaction between early release triggers and market dynamics creates a feedback loop worth understanding. When a stock approaches the trigger price, the market knows that a large block of previously restricted shares is about to become freely tradeable. Sophisticated traders may front-run the anticipated selling pressure, which can paradoxically prevent the stock from sustaining the trigger threshold. This cat-and-mouse dynamic is visible in the price action of many post-merger SPACs as they approach key lockup milestones.

Different Lockup Cohorts

Not all restricted shareholders are treated equally. SPAC lockup structures typically differentiate among several distinct cohorts, each with its own economic characteristics, risk profile, and contractual terms.

Sponsor Shares

The SPAC sponsor — the entity that organized and funded the IPO — holds founder shares (the "promote") that were acquired for a nominal amount, typically around $25,000 for 20% of the post-IPO equity. Because these shares were obtained at essentially zero cost basis, the sponsor has the greatest incentive to sell immediately and the greatest potential to disrupt post-merger trading. Accordingly, sponsor lockups are typically the longest and most restrictive, often running 365 days from closing with higher price-based early release thresholds.

In the DWAC (Trump Media & Technology Group) transaction, sponsor share lockup provisions attracted intense public scrutiny. The unique political dynamics surrounding that deal meant that any sponsor selling activity would be interpreted through a lens far beyond normal market mechanics, and the lockup terms reflected the heightened sensitivity.

PIPE Investors

Private Investment in Public Equity (PIPE) participants commit capital to the transaction before closing, typically at $10.00 per share (matching the trust value). PIPE investors range from long-only mutual funds to hedge funds to strategic investors, and their lockup terms vary accordingly. Some PIPE investors negotiate for no lockup at all, particularly large institutional investors whose participation is essential to getting the deal done. Others accept 30- to 90-day lockups as part of the negotiation.

The absence of PIPE lockups can create significant selling pressure immediately after closing. Because PIPE shares are registered for resale via the S-1 resale registration statement filed shortly after closing, PIPE investors with no lockup can begin selling as soon as the registration statement is declared effective — sometimes within days of the merger close.

Target Company Shareholders

Founders, executives, and early investors in the target company who receive merger consideration (shares in the combined company) are typically subject to lockup restrictions that parallel the sponsor terms. Their shares were acquired at valuations well below the implied merger valuation, creating the same incentive to monetize immediately.

However, target company insiders often negotiate different terms based on their continued operational role. A CEO who is staying on to run the combined company may accept a longer lockup as a demonstration of commitment, while a venture capital fund that is distributing shares to its limited partners may push for shorter restrictions.

Employee Shareholders

Rank-and-file employees who hold equity through stock option plans or restricted stock grants may be subject to separate lockup provisions negotiated as part of the merger agreement. These terms tend to be less restrictive than sponsor or executive lockups, reflecting both the smaller individual positions involved and the practical concern that overly restrictive terms could trigger employee attrition at a critical juncture.

Double-Trigger Structures

An increasingly common feature in SPAC lockup agreements is the double-trigger release structure. Rather than relying solely on the passage of time or a price threshold, a double-trigger lockup requires both conditions to be met before the restriction lapses.

For example, a double-trigger provision might state that shares are released on the later of (a) 180 days after closing, or (b) the date on which the stock trades above $12.00 for 20 of 30 consecutive trading days. Under this structure, even if the stock rockets above the price threshold in the first week of trading, the locked-up shares remain restricted until the time condition is also satisfied.

QS (QuantumScape) provides a compelling case study. The stock experienced extreme volatility following its merger with Kensington Capital Acquisition Corp., surging above $130 before eventually falling below $15. A double-trigger lockup in that context would have prevented insiders from selling during the initial euphoria, since the time condition would not yet have been satisfied — though once both triggers were met, the subsequent selling contributed to the stock's decline.

Double-trigger structures represent better corporate governance because they prevent the scenario where a short-lived stock spike allows insiders to dump shares before the company has demonstrated sustained post-merger performance. They also reduce the incentive for insiders to engage in promotional activity designed to artificially inflate the stock price just long enough to clear a single price trigger.

Variations and Evolving Practices

The SPAC market's evolution from 2020 through 2024 drove significant innovation in lockup structures, responding to regulatory pressure, investor demand, and the lessons learned from high-profile post-merger collapses.

Graded Release Schedules

Rather than a binary locked/unlocked structure, some recent SPAC transactions have adopted graded release schedules that allow a percentage of restricted shares to become tradeable at defined intervals. For example, 25% of locked-up shares might be released at 90 days, another 25% at 180 days, and the remaining 50% at 365 days. This approach smooths the potential supply impact by distributing it over time rather than concentrating it at a single lockup expiry date.

Volume-Limited Sales

Some lockup agreements permit restricted holders to sell limited quantities before the full lockup expiry — for example, up to 5% of their holdings in any given week after an initial 90-day hard lockup. This accommodates legitimate liquidity needs (particularly for executives with tax obligations on vesting equity) while preventing the kind of wholesale liquidation that destroys market confidence.

Forfeiture Provisions

In some transactions, particularly those involving sponsors that have agreed to reduced promotes, the lockup agreement includes forfeiture provisions tied to stock performance. If the stock fails to achieve specified price milestones within the lockup period, a portion of the restricted shares is forfeited (cancelled) rather than released. This mechanism directly ties the sponsor's economic outcome to post-merger performance and addresses the criticism that sponsors profit regardless of whether the deal succeeds.

NKLA (Nikola) became a cautionary tale on this front. After the stock declined sharply in the months following its merger with VectoIQ, questions about insider selling, short seller reports, and eventual fraud charges against the founder highlighted the importance of robust lockup structures. Transactions that followed Nikola's trajectory tended to include more stringent lockup terms as a direct response.

Market Impact of Lockup Expiry

The expiration of lockup periods is one of the most predictable and significant events in a post-merger SPAC's trading life. Academic research on traditional IPO lockup expirations has consistently documented abnormal negative returns and elevated trading volume around the expiry date, and SPAC lockup expirations exhibit the same pattern — often more pronounced, given the larger percentage of the float that is typically locked up in SPAC transactions.

The Anticipation Effect

Markets begin pricing in lockup expiry well before the actual date. Sophisticated investors monitor the lockup schedules disclosed in merger filings and position accordingly — shorting the stock in advance of expected selling pressure or purchasing put options. This anticipatory activity means that the stock price may begin declining days or weeks before the lockup actually expires.

Volume Dynamics

On and around lockup expiry dates, trading volume in post-merger SPACs routinely spikes to three to five times the average daily volume. This elevated volume can persist for several trading sessions as restricted holders work through their selling programs. The impact is particularly acute for smaller-capitalization companies with limited pre-expiry float, where the locked-up shares may represent a multiple of the existing freely tradeable supply.

Cascading Lockup Events

Because different cohorts typically have different lockup terms, a single SPAC merger may generate multiple lockup expiry events over the course of a year. The first wave might be PIPE investors at 30-90 days, followed by executives and target shareholders at 180 days, and finally the sponsor at 365 days. Each event creates a distinct supply overhang, and the cumulative effect can weigh on the stock for the entire first year of post-merger trading.

Due Diligence Considerations

For investors evaluating post-merger SPACs, understanding the lockup structure is essential to informed decision-making. Key questions include:

What percentage of outstanding shares is locked up? In some SPAC transactions, locked-up shares represent 60-80% of the total outstanding equity. When these shares become freely tradeable, the effective float increases dramatically, and the supply-demand dynamics shift accordingly.

When do the lockups expire, and in what sequence? Mapping the lockup schedule against the trading calendar allows investors to anticipate supply events and position accordingly. This information is publicly available in the merger agreement and related filings.

What are the early release triggers, and how likely are they to be activated? If the stock is trading near a price-based trigger threshold, the risk of early release should be factored into the analysis. Conversely, if the stock is trading well below the trigger price, the full time-based lockup is the operative constraint.

Are there any exceptions or waivers? Lockup agreements typically include provisions allowing the company's board of directors to waive the lockup for specific holders in certain circumstances. While waivers are uncommon, they do occur — particularly when an insider needs to sell for estate planning, tax, or regulatory reasons — and they can surprise the market.

What is the cost basis of the locked-up shares? Shares acquired at a nominal cost basis (sponsor promote) or at a significant discount to current market price create stronger selling incentives than shares acquired at or near the current price. Understanding the economic motivation of each locked-up cohort helps predict how aggressively they will sell once restrictions lapse.

Regulatory and Legal Context

The SEC's increased scrutiny of SPAC transactions since 2022 has included attention to lockup provisions. The SEC's proposed SPAC rules, portions of which were adopted in January 2024, do not mandate specific lockup terms but do require enhanced disclosure of the terms and their potential dilutive impact. This disclosure requirement ensures that public investors can evaluate lockup risk before voting on the merger.

State law also plays a role. Delaware — the most common state of incorporation for SPACs — allows companies to include lockup provisions in their certificates of incorporation or bylaws, creating an additional layer of enforcement beyond the contractual lock-up agreements. Some recent SPACs have adopted charter-based lockup provisions that are more difficult to waive or amend than purely contractual restrictions.

The practical takeaway for market participants is that lockup structures are negotiated, not standardized. Every SPAC merger has its own lockup architecture, and the details matter enormously for post-merger trading dynamics. Reading the actual lock-up agreement — not just the summary in the proxy statement — is a non-negotiable part of SPAC due diligence.