M&A deal failure: breaking up is hard to do. Can break fees keep your deal together?


12 December 2017

Cass Abandoned Acquisitions Report

Intralinks recently published the findings of a long-term, global study into abandoned acquisitions – deals that are announced but which subsequently fail to complete. Together with the M&A Research Centre at Cass Business School, London, we investigated more than 78,500 M&A deals announced over the past 25 years to identify the significant predictors of failed deals, and the strategies that acquirers and targets can employ to increase the likelihood of successful deal completion. We also interviewed 40 global M&A professionals, and incorporated their insights into our report. I’ll also highlight some of their comments in this post.

My first blog post on our study, Abandoned Acquisitions: Why do some deals fail to complete?, gave an overview of its key findings. In this second, and subsequent posts, I’ll take a deeper dive into the most significant predictors of deal failure. If you want more details about the methodology and data sample behind our study, please download the full report here.

In this post, I’ll discuss the subject of break fees, also known as termination fees, which were found to be the most significant factor affecting deal failure involving publicly listed M&A targets and the fourth most significant factor involving private M&A targets.

Public M&A targets

Our analysis revealed that, for public M&A targets, target termination fees (i.e., a fee payable by the target to the acquirer if the deal fails to complete) reduced the average probability of deal failure by almost 12%, compared to deals where no target termination fee had been agreed. As the chart below shows, in every M&A cycle over the past 25 years, public M&A target deals with target termination fees have significantly lower deal failure rates than deals without such fees. Over the entire period of the study, the average failure rate for deals for public targets where the target agreed to pay a termination fee was 4.7%, compared to 13.4% for deals where no such fees were payable – almost three times as high. In contrast, our study found that reverse break fees, (also known as acquirer termination fees, i.e., a fee payable by the acquirer to the target if the deal fails to complete) had no significant impact on deal failure involving public M&A targets.

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Worldwide average public target deal failure rate by target termination fee status, 1992-2016