Business, Legal & Accounting Glossary
In an acquisition, the party that decides not to pursue the deal pays a break-up fee. The buyer or seller can pay the break-up fee. If not completing the deal would have a negative impact on the seller, if the sales process is disruptive to the operation of the business, or if the seller has been approached with an unsolicited offer, the seller may request a break-up fee. A break-up fee included in the letter of intent demonstrates the buyer’s commitment to completing the transaction.
Similarly, if the seller has the option to shop the deal to other buyers, the buyer will request a break-up fee. A buyer’s break-up fee is a reimbursement for transaction costs incurred if the deal fails to close due to the seller’s actions.
Break-up fees can range between 1% and 3% of the total deal value.
Break-up fees are uncommon in privately-held mid-market transactions. This is most likely due to the difficulty of closing a mid-market deal, and introducing a break-up fee would discourage potential buyers from even bidding in controlled auctions. Following the signing of a letter of intent, it is common for a buyer to request exclusivity on the deal for a set period of time (commonly 60 to 90 days). If the seller refuses to offer exclusivity, the buyer may request a break-up fee paid if the deal is completed with another party. This fee would be used to cover all legal and due diligence expenses.
Termination Fees
Break Fee
Success Fee
Hello Fees
2 and 20 Fee Structure
Fee Tail
Letter of Intent (LOI)
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This glossary post was last updated: 26th January, 2022 | 0 Views.