Definition
Termination fee is the umbrella term covering both break-up fees (payable by target to bidder) and reverse termination fees (payable by bidder to target). Each is triggered by specific termination events spelled out in the merger agreement.
Common triggers (target → bidder)
- Target accepts a superior competing proposal
- Target board changes its recommendation
- Target shareholders vote down the deal (in deals requiring vote)
- Target breaches a no-shop or related covenant
Common triggers (bidder → target)
- Bidder fails to obtain financing (in financing-condition deals)
- Bidder fails to obtain required regulatory clearance
- Bidder repudiates the deal
Magnitude
Bidder-payable reverse termination fees in PE deals often substantially exceed the break-up fee — sometimes 8–10% of deal value — reflecting the asymmetric risk of bidder walk-aways.