What size break-up fee is reasonable?
Break-up fees are subject to legal challenge. Courts require these fees not be so large they substantially discourage other bidders. A break-up fee is most likely to be upheld if: • it is not excessive (i.e., it does not preclude sale to another buyer); • it is reasonably necessary to attract potential buyers ; • it keeps a potential buyer interested in the face of competing bids; and • it is not used in conjunction with Lock-Up (FAQ 11)or No-Shop (FAQ 5 and 6) provisions. Break-up fees are usually in the range of one to five percent of the purchase price.
