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Termination Fees in Public and Private Acquisitions: Drafting Forward and Reverse Breakup Fees

Using Fees to Allocate Risk and Ensure Deal Certainty; Case Law on Enforceability

Recording of a 90-minute premium CLE webinar with Q&A

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Conducted on Wednesday, July 15, 2020

Recorded event now available

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This CLE course will provide M&A counsel with guidance on the negotiation and drafting of forward and reverse breakup fee provisions in acquisition agreements. The panel discussion will include the purpose of termination fees for both the acquirer and the target, how they can impact other aspects of the deal, and recent decisions on enforceability of breakup fees.


Termination fees--also known as breakup fees--are now the most common type of lock-up device in M&A transactions. By agreeing to liquidated damages in the event of a breach, parties add certainty to a transaction. Termination fees also serve as insurance and deter breaches of an M&A agreement by a party having second thoughts about the deal it has struck.

In private company deals, forward termination fees often arise when the target company is presented with and wants to accept a more favorable offer after entering into a merger agreement. Public merger agreements typically contain detailed trigger provisions addressing other reasons for termination, such as failure to obtain shareholder approval. The amount of the breakup fee may vary depending on the reason the target is terminating the transaction.

The acquirer pays reverse termination fees if it is unable to close on the acquisition due to a failure to obtain financing or satisfy other conditions of closing. Often the acquirer's ability to meet such requirements requires the cooperation of the seller, so counsel must draft such reverse fee provisions with care.

The details within both types of breakup fee provisions provide for many points of negotiation and potential dispute if the deal does not close. Delaware courts have often based enforceability decisions on whether the arrangement is reasonable under the circumstances. In contrast, New York courts have looked at whether the provision contains the proper components for an enforceable liquidated damages clause.

Listen as our authoritative panel discusses breakup fees from the perspective of both the acquirer and the target. The panel will also discuss the drafting components to breakup fee provisions, including trigger provisions and tiered fees.



  1. Motivations behind breakup fees for target and acquiring entity
  2. Forward breakup fees: triggers in deals generally
    1. Acceptance of better proposal
    2. Change of heart
  3. Additional triggers for forward breakup fees in public company deals
    1. Fiduciary out: target company's board changes its view about the advisability of the transaction
    2. Tail period
    3. Rejection or no vote by stockholders on the transaction
    4. Breach of the no-shop or stockholder meeting covenant
  4. Reverse breakup fees for failure of acquirer to close: financing and other contingencies
  5. Enforceability of breakup fees: New York and Delaware approaches


The panel will review these and other relevant issues:

  • How can forward breakup fees benefit both parties to an acquisition agreement?
  • Should fees vary depending on a public target's reason for terminating a deal? What is market?
  • Should reverse breakup fee provisions put any financing contingency solely on the acquirer?
  • How have Delaware and New York courts traditionally viewed termination fees?


Conahan, Joseph
Joseph B. Conahan

Partner/Co-Chair, Mergers and Acquisitions Practice
Wilmer Cutler Pickering Hale and Dorr

Mr. Conahan’s practice focuses on the representation of buyers, sellers and boards of directors in mergers,...  |  Read More

Hacohen, Tal
Tal Hacohen

Orrick Herrington & Sutcliffe

Mr. Hacohen is a member of the firm’s Global Mergers & Acquisitions and Private Equity Group. He represents...  |  Read More

Talarides, Alex
Alex Talarides

Orrick Herrington & Sutcliffe

Mr. Talarides is a Partner in the White Collar, Investigations, Securities Litigation & Compliance group. His...  |  Read More

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