It is common for existing shareholders to sell shares in the IPO at the same time that the company issues new shares to raise capital for itself. Typically, financial investors (such as private equity houses) are able to sell a greater proportion of their pre-IPO holdings than members of the senior management team. IPO investors want to be comfortable that the senior management team will remain invested in the delivery of the strategy and the generation of shareholder value and therefore do not want to see them selling all of their holdings. In our experience, members of the senior management team are often permitted to sell between 25% and 35% of their pre-IPO holding in the IPO.
Significant shareholders and members of the senior management will likely be required to sign lock-up undertakings preventing them from selling their post-IPO holdings for a period of 180 days and 12 months, respectively.
Following the expiry of lock-up undertakings, members of the senior management team will be prevented from selling shares during specific periods before the release of results and at other times when the senior managers are in possession
of inside information. However, even when there are no contractual or regulatory restrictions on selling, consideration has to be given to the messaging that accompanies the announcement of a sale of shares by a senior manager and the likely reaction from investors.