What is a reverse breakup?

What is a Reverse Termination Fee? A reverse termination fee is also known as a reverse breakup fee. It refers to the amount of money paid to the target company after the acquirer backs out of the deal or the transaction fails to complete.

What is RTF in M&A?

While buyers protect themselves via breakup (termination) fees, sellers often protect themselves with reverse termination fees (RTFs). As the name suggests, RTFs allow the seller to collect a fee should the buyer walk away from a deal.

Are break up fees enforceable?

The general rule is that break-up fees are enforceable as liquidated damages and serve as the exclusive and sole remedy of the non-terminating party, at least when the agreement so specifies, which it typically does.

Who pays a break up fee?

A company might pay a breakup fee if it decides not to sell to the original purchaser and instead sells to a competing bidder with a more attractive offer. Sometimes a breakup fee can discourage other companies from bidding on the company because they would have to bid a price that covers the breakup fee.

What is a fiduciary out?

A fiduciary out is a provision in an acquisition agreement or exclusivity agreement that gives the target the right to terminate the transaction if a superior offer is accepted by the board pursuant to its fiduciary duties.

What is the go shop process?

In its purest form, a go-shop process involves an exclusive (or nearly exclusive) negotiation with a single buyer, followed by an extensive post-signing “go shop” process to see if a higher bidder could be found.

Who pays reverse termination fee?

the buyer
Also known as a reverse termination fee or a reverse break fee. A fee paid by the buyer if it breaches the acquisition agreement or is unable to consummate the transaction due to lack of financing and the seller terminates the agreement in accordance with its terms.

What is payment break up?

What Does Break-up Fee Mean? A break-up fee is paid in an acquisition by the party that decides not to pursue the deal. The break-up fee can be paid to either the buyer or the seller.

What is no shop agreement?

A no-shop clause is a condition in an agreement between a seller and a potential buyer that prevents the seller from getting an offer from another buyer. These clauses are commonly found in mergers and acquisition deals.

What is a fiduciary clause?

Executive acknowledges and agrees that he owes a fiduciary duty to the Company and further agrees to make full disclosure to the Company of all business opportunities pertaining to the Company’s business and shall not act for his own benefit concerning the subject matter of his fiduciary relationship.

What happens after a go shop period?

Go-shop periods are a timeframe, generally one to two months, where a company being acquired can shop itself for a better deal. Go-shop provisions generally allow the initial bidder to match any competing offers, and if the company is sold to another buyer they are generally paid a breakup fee.

How long is typical go shop period?

between 20-55 days
A “go-shop” is a provision in a merger agreement that allows a target to solicit interest from potential buyers of the company for a lim- ited period of time (typically between 20-55 days) after signing a definitive agreement with an initial buyer.

What is a fee break?

A break fee is a fee paid to a party as compensation for a broken deal or contract failure. Two common situations where a break fee could apply is if a mergers and acquisitions (M&A) deal proposal is terminated for pre-specified reasons and if a contract is terminated before its expiration.

What is a lock up option?

Key Takeaways A lock-up option is a contract that favors a friendly company in a takeover battle by promising it some of the target company’s shares or best assets. Lock-up options are not options in the trading sense, so they are not subject to rules or regulations beyond basic contract law.

Is a no shop agreement legally binding?

The terms in the section are binding, even if the transaction is never finished. The no shop mandate requires a business and the founders not to solicit offers of company investment by parties other than that venture capital investor for a certain time.

What is a no shop period?

A no-shop clause limits the scope of the seller to raise the selling price of the asset. A no-shop clause is very common in the letter of intents as the buyers expect a period of exclusivity before closing a deal. The typical time period of a no-shop clause is between 45 days and 90 days.

What is due diligence?

Due Diligence is a process that involves conducting an investigation, review, or audit to verify facts and information about a particular subject. In simple words, Due Diligence means doing your homework and acquisitions of required knowledge before entering into any agreement or contract with another company.