Break Fees In Private M&A

The speed of economic change in the energy sector has created legitimate concerns about volatility in the marketplace.  This has caused both vendors and purchasers to be more cautious in deal making. One way to help the situation is to give more certainty that each party is committed to the deal despite any heightened deal risk. Break Fees can be used as an effective deal protection measure that gives parties certainty and protection against wasted time and resources.

Break fees are routinely used in public M&A deals. They incentivize targets to work with purchasers and provide a monetary fee to the purchaser if the target elects to walk away. Recent deal point surveys put the number of public M&A transactions using break fees at 95 percent and higher. In private M&A on the other hand, break fees are very uncommon, only appearing, we estimate, in between two and three percent of transactions. We feel this number may go up based on the shifting economic circumstances