Termination Fee

1 minutes read
Last updated: November 6, 2023

A termination, or break-up, fee is the amount payable under an acquisition agreement by the seller (buyer) to the buyer (seller) if the acquisition fails to close for reasons specified in the acquisition agreement. The typical range for termination fees is 1-4% of the equity value of the transaction, with larger deals often in the 2-3% range. However, not all deals conform to this standard. AT&T’s failed bid for T-Mobile USA in 2011 resulted in the former paying the latter $4 billion in cash and assets, or 10.2% of the $39 billion purchase price.

The termination fee is designed to compensate the the willing party for its efforts and expenses incurred to close the transaction if the unwilling party exercises a fiduciary out in the acquisition agreement. From the buyer’s perspective, the termination fee also incentivises the seller to complete the transaction, and not shop the deal to other potential acquirors or consider competing offers from other bidders. Termination fees have been criticized for forcing selling shareholders and directors to approve the deal, and ignore alternatives that may be in the better interests of shareholders.

 

Build Models & Decks 10x Faster with Macabacus

Gain access to 100+ shortcuts, formula auditing visualizations, easy Excel-to-PowerPoint linking, and productivity tools to build models and presentations faster than ever.

Discover more topics

Download The State of M&A Transactions
Download this report for expert guidance on innovative structures, cost-effective financing, and antitrust strategies to accelerate deals.
Read more
DCF Excel Template
Elevate your investment analysis with our free DCF model template. Understand discounted cash flow principles and perform accurate valuations in Excel.
Read more
Operating Model Excel Template
Download our free operating model Excel template. Forecast revenue, expenses, and key financial metrics for better decision-making.
Read more
LBO Excel Model
Try LBO modeling with our comprehensive Excel template. Understand key concepts, calculate returns, and gain actionable insights.
Read more