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.


Create Financial Models 10x Faster with Macabacus

Gain access to 100+ shortcuts, formula auditing visualizations, easy Excel-to-PowerPoint linking and productivity tools to help you accelerate financial modeling and presentations.

Start your Free Trial

Discover more topics

Build an operating model
In this tutorial, we will walk through how to build a general industry business operating model.
Read more
Build an M&A model
In this section, we demonstrate how to model a merger of two public companies in Excel.
Read more
Build an LBO model
In this tutorial, we will walk you through building an LBO model in Excel.
Read more
Asset and Stock Deals
The first step in purchase price allocation, or PPA, is to determine the purchase price.
Read more