What is a breakup fee?
A breakup fee (also called a termination fee) is a sum payable by one party to another if a defined termination event occurs in an M&A deal. The standard breakup fee is paid by the target to the buyer if the target accepts a superior proposal or board changes its recommendation. The reverse termination fee (RTF) is paid by the buyer to the target if the buyer cannot or will not close (financing failure, regulatory failure, walk).
Typical fee sizes
- Standard breakup fee: typically 2-4% of enterprise value or equity value. Delaware courts (e.g., Phelps Dodge) generally tolerate up to about 3-4%; higher fees may face challenge as deterring superior bids.
- Reverse termination fee: commonly 4-8% of equity value; higher for deals with significant antitrust or financing risk.
Triggers — standard breakup fee
- Board accepts superior proposal.
- Board change of recommendation followed by deal failure.
- Stockholder vote failure following an intervening proposal.
Triggers — reverse termination fee
- Failure to obtain antitrust/regulatory approval.
- Buyer’s financing failure (in some deals, especially leveraged transactions).
- Buyer’s specific termination right exercise (walk).
- Specific performance unavailability mismatch (e.g., financing-fail walk-away with capped RTF).
Türk uygulamasında
Türk M&A işlemlerinde breakup fee yaygın kullanılır; sözleşme cezası (ceza-i şart, TBK Madde 179-182) hukuki yapısı altında düzenlenir. Türk hâkim ceza-i şartı aşırı bulursa indirim yetkisine sahiptir (TBK Madde 182). Pratikte halka açık olmayan Türk işlemlerde fee yapısı tipik olarak ABD ortalamalarına yakındır; halka açık Türk şirket işlemlerinde SPK düzenlemeleri ek dikkat gerektirir.
Do: calibrate fee size against deal size and risk allocation (financing, antitrust, target board fiduciary); document the rationale for proportionality analysis.
Don’t: set an unreasonably high standard breakup fee in a public deal — Delaware and Türk SPK both scrutinise for entrenchment.