top of page


  • Daniel Rodriguez

Merger breakup fees most common among public companies

Both public and private companies conduct mergers and acquisitions. The status of a company influences whether a breakup fee will be part of the terms during negotiation of the deal. A breakup fee is paid when a seller chooses to halt a merger. The penalty usually amounts to between 1% and 3% of the deal’s value. The money compensates a buyer for the lost time and effort put into the failed deal. A privately held company in California is less likely to specify a breakup fee than a publicly held company. Public companies typically insist on breakup fees for a number of reasons.

Competitive nature of public mergers and acquisitions

An announcement of an upcoming merger or acquisition concerning public companies can arouse the interest of other buyers. As more buyers express interest in acquiring the company being sold, the seller has an opportunity to look for the best offer. In this situation, buyers want breakup fees specified in the letter of intent or other preliminary agreements to protect their interests because they might not succeed in the acquisition.

When breakup fees must be paid

The early agreements will specify situations that force the payment of a breakup fee. The parties involved determine what events or business disputes would justify enforcement of a breakup fee provision, but common reasons include:

  1. Shareholders disapprove of the proposed deal

  2. Seller accepts an offer from another entity

  3. Board of directors halts the deal

  4. Buyer discovers undisclosed problems with the business

Why private companies avoid breakup fees

Medium-sized companies that are privately held tend to conduct mergers and acquisitions through a lengthy auction process. Their owners view breakup fees as a deterrent to potential buyers.

Recent Posts

See All

Common reasons for business partnership disputes

Most often than not, having a partner in a business means having an additional source of ideas, capital and resources. However, this also means an increase in potential conflict between partners. Fort

Relationships are the foundation of a business

Building a business starts with a relationship. Fundamentally, you have a buyer and a seller. As your business grows, so do the number of relationships you form. The more relationships you form and th


Sacramento form background.jpg

Connect with an Attorney

Your business deserves a legal partner who understands your current needs and is equipped to evolve with you. NewPoint Law Group is ready to be that partner, ensuring that your legal foundation is as robust and forward-thinking at every milestone as your business itself.

Create, Grow, and Protect Your Business with NewPoint Law Group

bottom of page