HandbookFees
What is a termination fee?
A plain guide to the number on every deal: what it is, how to read it, and the maths.
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What it is
The fee the target pays the buyer if the agreement ends in the cases it sets out, typically when the target accepts a better offer from someone else.
On the site asTarget feeFeeBreak fee
How to read it
The Target fee column shows it as a share of the deal value; the checklist shows the dollar amount with its quote.
When the agreement sets several, it is the main one: a lower fee that applies during a go-shop isn't the one shown.
It adds to the cost of a competing bid, since it is owed when the target leaves the deal for another.
How it is worked out
termination fee ÷ deal value
A worked example
Example, with made-up numbers
Deal value $1.0B, termination fee $35M.
- 35 ÷ 1,000 = 3.5%
Related terms
- Reverse termination feeThe fee the buyer pays the target if the agreement ends in the cases it sets out, typically when an approval is refused or the buyer's financing fails.
- Deal valueThe total value of the deal as the companies state it when they announce or revise it.
- Go-shopA period after signing when the target may actively look for a better offer.
