Break Fees and Reverse Break Fees in M&A Transactions

Summary

This practice note discusses break fee and reverse break fee provisions — also known as termination/reverse termination fees or break-up/reverse break-up fees. Break fees provide for a vendor/target to make a significant lump-sum payment to a purchaser if the acquisition agreement is terminated in certain circumstances, such as in the event of a competing bid. Reverse break fees provide for a purchaser to make a similar payment to the vendor. While break fees and reverse break fees are much more common in public M&A transactions, this practice note covers their use in both public and private transactions. It also discusses typical triggers for such fees and their relation to other provisions in an acquisition agreement, such as specific performance provisions. For ease of reference, the remainder of this practice note will refer only to the vendor, but depending on the circumstances, fees may be paid and/or received by the target.