How to Track a Break-Up Fee in M&A

How to track a break-up fee is a seller-pays-buyer termination-fee ledger, not the reverse termination fee the buyer may owe, and not the no-shop process itself. For each signed deal, log the fee amount and base, the triggers that make the fee due, any go-shop discount, payment timing, related expense reimbursement, and status. Raziel's reverse termination fee tracking page is the buyer-pays path. Raziel's no-shop tracking page is the process that can lead here.

This is not legal, tax, or investment advice. Raziel does not provide it. Copy the termination-fee article. Do not invent a market percent.

What this break-up-fee ledger is (and is not)

A break-up fee (termination fee) is typically payable by the target to the acquirer if the target terminates to take a superior proposal or otherwise triggers the fee events listed in the merger agreement. Houlihan Lokey’s 2024 Transaction Termination Fee Study reports termination fees as a percentage of transaction value ranging from 0.2% to 6.0%, with a mean of 2.4% and a median of 2.6%. DealLawyers.com, summarizing that study, notes the average termination fee for deals announced in 2024 was 2.4% of equity value, and that Delaware commentary has flagged a 6.3% fee as seeming to stretch the range of reasonableness (without deciding coerciveness). Those figures are study and commentary snapshots. Your agreement’s dollar amount and triggers control.

Seven columns on one break-up-fee row

Open one row per signed deal (child rows if a reduced go-shop fee sits beside the full fee). Attach the termination-fee section.

• Fee amount and base. Dollar amount and percent of equity value, enterprise value, or another defined base. Houlihan Lokey 2024: median 2.6% of transaction value (mean 2.4%, range 0.2% to 6.0%). Copy yours.

• Triggers that make the fee due. Termination for a Superior Proposal, board recommendation change, competing deal that closes within a tail period, or other listed events. Copy each trigger. Do not invent “any termination.”

• Triggers that do not owe the fee. Buyer breach, mutual walk, regulatory failure allocated to the buyer, or other carve-outs. Keep these next to the due list.

• Go-shop / reduced fee (if any). ABA Business Law Today: a go-shop may let the target pay a reduced fee (often described as about half) if the topping bid originated in the go-shop window. Copy the reduced amount and window. Store “none” if silent.

• Payment timing and form. When the fee is due after termination, wire instructions if stated, and whether it is the exclusive remedy for those triggers. Copy the remedy language.

• Expense reimbursement / other amounts. Separate expense caps that may apply instead of or in addition to the fee on certain paths. Do not fold them into the fee cell without a note.

• Status. Live, waived, noticed, paid, or expired with closing. When paid, book the cash date on the deal ledger and link the no-shop row that explains why.

Copy the signed fee, not the 2.6 percent median

Do not paste Houlihan Lokey’s median onto every LOI. The 2024 study range ran from 0.2% to 6.0% of transaction value. Do not mix a reverse termination fee into this row. Do not treat a paid fee as proof the no-shop process was followed correctly. Keep process on the no-shop row and cash here.

Tail periods and recommendation changes

Many termination-fee articles include a tail: if the agreement terminates and the target signs or closes an alternative deal within a stated number of months, the fee can still be owed. Copy the tail length and what counts as a qualifying alternative transaction. A board recommendation change without a termination can also trigger the fee on some deals. Keep that trigger on its own bullet so a “we still signed the first buyer” outcome does not hide a cash obligation.

When the fee is paid, record payor, payee, wire date, and which trigger fired. Link the no-shop child proposal that caused the jump, if any. If the parties waive the fee in a side letter, attach that letter and flip status to waived with the waiver date. A waived fee that still sits as “live” in your book will distort MOIC when someone later assumes cash left.

When the ledger holds

The row holds if the seven cells are copied from the agreement and payment records (or marked missing). It fails when you invent a percent, confuse buyer and seller fees, or ignore a go-shop discount. Raziel's MOIC calculator is only honest if that cash has a date and a label. Raziel does not interpret your termination article. Copy the seven columns.