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

Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
- work Practice Area
Commercial Law
- event Date
Wednesday, July 15, 2020
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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.
Faculty

Mr. Conahan’s practice focuses on the representation of buyers, sellers and boards of directors in mergers, acquisitions, divestitures, joint ventures and other strategic transactions in the life sciences, technology, FinTech and industrial sectors, as well as on counseling public companies on complex governance and disclosure matters. Mr. Conahan recently served as co-chair of the Boston Bar Association’s Mergers & Acquisitions Committee and co-chaired the advisory committees for the Boston Bar Association's 2016 M&A Conference and 2017 M&A Conference.


Mr. Talarides is a Partner in the White Collar, Investigations, Securities Litigation & Compliance group. His practice focuses on defending companies and their officers and directors in securities class actions, shareholder derivative actions, mergers and acquisition litigation, and regulatory proceedings.
Description
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.
Outline
- Motivations behind breakup fees for target and acquiring entity
- Forward breakup fees: triggers in deals generally
- Acceptance of better proposal
- Change of heart
- Additional triggers for forward breakup fees in public company deals
- Fiduciary out: target company's board changes its view about the advisability of the transaction
- Tail period
- Rejection or no vote by stockholders on the transaction
- Breach of the no-shop or stockholder meeting covenant
- Reverse breakup fees for failure of acquirer to close: financing and other contingencies
- Enforceability of breakup fees: New York and Delaware approaches
Benefits
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?
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