Antitrust-Related Reverse Break-Up Fees in 2023 | Practical Law

Antitrust-Related Reverse Break-Up Fees in 2023 | Practical Law

A review of antitrust-related reverse break-up fees contained in private acquisition and public merger agreements in Practical Law's What's Market Antitrust Risk-Shifting database from 2023. This Article discusses the size of reverse break-up fees, fee triggers, the industry breakdown, interaction with other antitrust risk-shifting provisions, and other issues relating to antitrust-risk allocation.

Antitrust-Related Reverse Break-Up Fees in 2023

Practical Law Article w-042-2637 (Approx. 21 pages)

Antitrust-Related Reverse Break-Up Fees in 2023

by Practical Law Antitrust
Law stated as of 01 Mar 2024 • USA (National/Federal)
A review of antitrust-related reverse break-up fees contained in private acquisition and public merger agreements in Practical Law's What's Market Antitrust Risk-Shifting database from 2023. This Article discusses the size of reverse break-up fees, fee triggers, the industry breakdown, interaction with other antitrust risk-shifting provisions, and other issues relating to antitrust-risk allocation.
In M&A transactions with foreseeable risk that the buyer will be unable to close, buyers and sellers often negotiate for the possible payment of a reverse break-up fee. Antitrust-related reverse break-up fees are termination fees payable by the buyer to the seller in a private acquisition or to the target company in a public merger if the deal cannot close because of either:
  • A failure to obtain antitrust approvals required for the deal, including under the Hart-Scott-Rodino (HSR) Act.
  • A governmental authority enjoining the transaction under the antitrust laws.
Reverse break-up fees are a primary way to allocate antitrust risk in a purchase agreement where the parties are particularly concerned about obtaining antitrust approval, usually because the parties are competitors. If one of the antitrust agencies investigates or challenges a deal, the risk of not closing lies with the seller if there is no reverse break-up fee. This is because the seller may experience pre-closing losses during the investigation or litigation period, including:
  • A loss of customers.
  • A decline in valuation.
  • Departure of its employees.
By charging the buyer a reverse break-up fee, the parties attempt to quantify these losses and allocate them to the buyer while also incentivizing the buyer to exert maximal efforts to obtain antitrust approval for the transaction.
Practical Law's What's Market Antitrust Risk-Shifting Database gathers and summarizes both private acquisition agreements and public merger agreements that contemplate a reverse break-up fee payable for antitrust failure. In each case where an HSR or other premerger filing is required, and the agreement specifies the parties' efforts to get antitrust approval, the Antitrust Risk-Shifting Database covers all:
  • Public merger agreements for the acquisition of US reporting companies valued at $100 million or more and entered into since November 1, 2012.
  • Publicly filed acquisition agreements entered into since June 1, 2012 that are valued at $25 million or more and involve the acquisition of:
    • all or substantially all of the assets of private US companies;
    • at least a majority of the outstanding stock of private US companies; or
    • at least a majority of the business units of US companies.
In 2023, the database included 39 deals that contained published antitrust-related reverse break-up fees. For each of those 39 deals, this Article reviews and discusses:
  • The size of the fees.
  • The antitrust triggers for the fees.
  • Deals with tiered fees, in which different fee amounts are payable under different circumstances, all having to do with antitrust approval.
  • Deals with both an antitrust and non-antitrust triggered fee.
  • Deals with an antitrust-related ticking fee.
  • The interaction of the fees with other risk-shifting provisions in the agreement.
  • Extensions to the drop-dead date for antitrust reasons in deals with fees.
  • The industries in which the deals with antitrust-triggered fees are found.
For more information on antitrust-related reverse break-up fees, see Standard Clause, Purchase Agreement: Reverse Break-Up Fee for Antitrust Failure and Practice Note, What's Market: Reverse Break-Up Fees for Antitrust Failure.
To review the similar study performed in 2022, see Antitrust Related Reverse Break-Up Fees in 2022, and in 2021, see Antitrust-Related Reverse Break-Up Fees in 2021.

Size of Antitrust-Related Reverse Break-Up Fees

Public and Private Transactions with Antitrust-Triggered Reverse Break-Up Fees

Image 1 within Antitrust-Related Reverse Break-Up Fees in 2023​
Figure A illustrates the value of the antitrust-related reverse break-up fees for all 39 public and private deals in the Antitrust Risk-Shifting Database in 2023. The figure shows that of those fees:
Two deals are included more than once in Figure A (resulting in a total of 42 entries) because they each contained more than one antitrust-related reverse break-up fee:
(See Deals with Tiered Antitrust-Related Reverse Break-Up Fees.)
The largest antitrust-related reverse break-up fees of 2023 on a dollar basis were in:
The largest antitrust-related fees in terms of the percentage of the total deal value were in:
The average fee of all the 2023 deals in the database was 4.81%, down significantly from 5.97% of the respective deal value in 2022, and up from 4.55% of the respective deal value in 2021.
For deal size, the average fees were:
  • 4.38% for deals valued at $5 billion or more, up from 4.36% in 2022.
  • 5.08% for deals valued at $1 billion or more and up to $5 billion, down from 5.17% in 2022.
  • 5.22% for deals valued at $500 million or more and up to $1 billion, down from 5.54% in 2022.
  • 5.20% for deals valued at $100 million or more and up to $500 million, down from 5.66%.
  • There were no deals valued at $50 million or more and up to $100 million, where the average fee was 2.68% in 2022.
The average fee in public deals in the database in 2023 was 4.99%, down significantly from the average fee of 5.23% in 2022, and up from the average fee of 4.56% in 2021.
In 2023, the average fee in private deals in the database was 4.39%, down significantly from the average fee of 7.50% in 2022, and down from the average fee of 4.55% in 2021.
The decrease in the average fees is likely the result of more reverse break-up fees in the 4 to 6% of deal value bracket than in previous years in transactions. There were 17 fees in the 4 to 6% bracket in 2023, up from 13 fees in 2022 in that bracket.
In 2023, we used deal value rather than equity value when determining fees for all public deals, which affected the fee size for most transactions. However, both deal value and equity value calculations are included in all public antitrust risk-shifting summaries with reverse break-up fees in 2023. Similarly, in 2022 and 2021, we used deal value rather than equity value when determining fees for all public deals, which affected the fee size of several deals in 2022 and 2021.
In 2023, as was the case in 2022, a large number of deals had big fees. For example, in 2023, a total of twelve (29%) of the year's 42 reverse break-up of fees payable for antitrust failure were set at 6% or more of the deal value. Similarly, in 2022, a total of fifteen (35%) of the year's 43 reverse break-up fees payable for antitrust failure were set at 6% or more of the deal value. Fees in the 6% or more of deal value category were up substantially in 2023 and in 2022 compared to 2021 (16%).
Figure A1 shows the number of deals with reverse break-up fees by deal value from 2021 to 2023.
In 2023, the bulk of the reverse break-up fees in both private and public deals were in large deals valued at $1 billion or more (35 of the 42 fees, or 83%). This was similar to previous years where the bulk of the reverse break-up fees in both private and public deals were in large deals valued at $1 billion more, including:
  • In 2022, 31 of the 43 fees, or 72%.
  • In 2021, 23 of the 31 fees or 74%.
(See Figure A1.)
Image 2 within Antitrust-Related Reverse Break-Up Fees in 2023​
As was the case in 2022, about half of the 35 fees in larger deals, both public and private, valued at $1 billion or more in 2023 were in very large deals valued at $5 billion or more (17 of the 35 fees, or 49%). Similarly, in 2022, 16 of the 31 fees (or 52%) in deals valued at $1 billion or more were in very large deals valued at $5 billion or more. This was in contrast to 2021, where only six of the 23 fees (26%) in larger deals were in deals valued at $5 billion or more (see Figure A1).
In 2023, as was the case in 2021, no fees were observed in small transactions valued below $100 million. In 2022, no public deals valued below $100 million had fees while only two fees were observed in private deals valued in this deal bracket.
In 2023, as was the case in both 2022 and 2021, the bulk of deals with reverse break-up fees valued at $5 billion or more were public deals:
  • Of the 17 fees in 2023 in deals valued at $5 billion or more, 13 fees were found in public deals and four in private deals (76% in public deals).
  • Of the 16 fees in 2022 in deals valued at $5 billion or more, 14 fees were found in public deals and two in private deals (88% in public deals).
  • Of the six fees in 2021 in deals valued at $5 billion or more, all were in public deals.
(See Figure A2.)
Image 3 within Antitrust-Related Reverse Break-Up Fees in 2023​

Public Merger Agreements with Antitrust-Triggered Reverse Break-Up Fees

Image 4 within Antitrust-Related Reverse Break-Up Fees in 2023​
Figure B illustrates the value of the antitrust-related reverse break-up fees in the 29 public mergers covered in the Antitrust Risk-Shifting Database in 2023.
No deals had multiple fees in 2023, so the graph reflects 29 total fees.
Of the 29 public M&A deals containing antitrust-related reverse break-up fees, the largest:
The average size of antitrust-related reverse break-up fees in public M&A deals in 2023, as calculated from the 29 public M&A deals in the study sample, was approximately 4.99% of deal value. The average fee size decreased compared to 2022, when it was 5.23% of deal value, but increased relative to the 2021 average of 4.56% of deal value.
In 2023, as was the case in 2022, for deals of $5 billion or more, reverse break-up fees for antitrust failure ranged from under 3% to above 6%. In contrast, in 2021, the reverse break-up fees for antitrust failure in deals of $5 billion or more showed less variability, and no fees of less than 3% were observed. (See Figure B1.)
Image 5 within Antitrust-Related Reverse Break-Up Fees in 2023​
In 2023, as was the case in 2022, about half of the reverse break-up fees in public deals were in deals valued at $5 billion or more. In 2023, 13 fees out of the 29 fees in public deals, or 45%, were observed in deals of $5 billion or more. In 2022, 14 fees out of the 29 fees in public deals, or 48%, were observed in deals of $5 billion or more. In contrast, in 2021, six fees out of the 21 fees in public deals, or 19%, were observed in deals valued at $5 billion or more (see Figure B2).
Image 6 within Antitrust-Related Reverse Break-Up Fees in 2023​
In keeping with previous years, the majority of the fees in larger deals mainly fell in larger percentage brackets. In 2023, as was the case in 2022 and 2021, the majority of the deals valued between $1 and $5 billion had antitrust-related reverse break-up fees priced at 4% or more of the deal's value. In $1 billion to $5 billion category in:
  • 2023, 11 of the 13 deals (85%) had antitrust-related reverse break-up fees priced at 4% or more of the deal's value.
  • 2022, eight of the nine deals (89%) had antitrust-related reverse break-up fees priced at 4% or more of the deal's value.
  • 2021, six of the ten deals (60%) had antitrust-related reverse break-up fees priced at 4% or more of the deal's value.
(See Figure B3.)
Image 7 within Antitrust-Related Reverse Break-Up Fees in 2023​
In smaller public deals, buyers and target companies tend to use relatively larger antitrust-triggered reverse break-up fees. In both 2023 and 2022, the bulk of the fees in deals valued between $100 million and $1 billion were at least 4% of deal value. For example, in deals valued between $100 million and $1 billion, in:
  • 2023, two of the three fees (67%) were at least 4% of the deal value.
  • 2022, four of the six fees (67%) were at least 4% of the deal value.
In contrast, in 2021, in deals valued between $100 million and $1 billion, only one of the five fees (20%) was at least 4% of the deal value (the Argo Infrastructure Partners, LP/Macquarie Infrastructure Holdings, LLC deal, valued at $514 million, with a fee of 4.42%). (See Figure B4.)
Image 8 within Antitrust-Related Reverse Break-Up Fees in 2023​
In 2023, 2022, and 2021, we used deal value rather than equity value when determining the fees for all public deals, which affected the fee size of some deals where the consideration included cash and stock.

Private Acquisitions with Antitrust-Triggered Reverse Break-Up Fees

Image 9 within Antitrust-Related Reverse Break-Up Fees in 2023​
Figure C includes the value of the antitrust-related reverse break-up fees in the 10 private deals in the Antitrust Risk-Shifting Database in 2023.
Two deals are reflected multiple times in the graph (reflecting 13 total fees) because they had multiple fees:
Of these 10 private deals containing antitrust-related reverse break-up fees, the largest:
In 2023, for private deals of $5 billion or more, reverse break-up fees for antitrust failure ranged up to 4%. In contrast, in 2022, for private deals of $5 billion or more, reverse break-up fees for antitrust failure ranged from 3% up to 6%. In both 2023 and 2022, for private deals of $5 billion or more, there were no reverse break-up fees for antitrust failure of 6% or more. In 2021, no private deals with reverse break-up fees were valued at $5 billion or more.
(See Figure C1.)
Image 10 within Antitrust-Related Reverse Break-Up Fees in 2023​
In keeping with both 2022 and 2021, most fees in larger deals mainly fell in larger percentage brackets. For example, in deals valued between $1 and $5 billion, in:
  • 2023, four of the five deals (80%) had antitrust-related reverse break-up fees priced at 4% or more of the deal's value.
  • 2022, three of the six deals (50%) had antitrust-related reverse break-up fees priced at 4% or more of the deal's value.
  • 2021, five of the seven deals (71%) had antitrust-related reverse break-up fees priced at 4% or more of the deal's value.
(See Figure C2.)
Image 11 within Antitrust-Related Reverse Break-Up Fees in 2023​
In smaller private deals, buyers and target companies tend to use relatively larger antitrust-triggered reverse break-up fees. In 2023, two of the four fees (50%) in private deals valued between $50 million and $1 billion were at least 4% of the deal value. Similarly, in previous years, smaller deals had larger fees. Specifically, in private deals valued between $50 million and $1 billion, in:
  • 2022, five of the six fees (83%) were at least 4% of deal value.
  • 2021, two of the three fees (67%) were at least 4% of deal value.
(See Figure C3.)
Image 12 within Antitrust-Related Reverse Break-Up Fees in 2023​

Industries

Figure D illustrates the target company's industry for the 39 deals in the Antitrust Risk-Shifting Database that contained antitrust-related reverse break-up fees.
Image 13 within Antitrust-Related Reverse Break-Up Fees in 2023​
Within the Antitrust Risk-Shifting Database, of those deals in 2023 that contained antitrust-related reverse break-up fees, more than half (56%) fell in the following industries:
  • Pharmaceuticals and biotechnology (11 deals).
  • Computer and electronic equipment (four deals).
  • Medical devices and health care (four deals).
  • Automobiles, airlines, and transportation (three deals).
The remainder of deals were spread across a wide variety of industries in 2023, including two deals in manufacturing and machinery and two deals in construction and materials. This represents a change in the mix of industries compared to previous years, but with a continued high level of fees in pharmaceuticals and biotechnology, medical devices and health care, automobiles, airlines and transportation, and computer and electronic equipment.
For example, in 2022, a high number of deals appeared in pharmaceuticals and biotechnology (six deals), computer and electronic equipment (six deals), and automobiles, airlines and transportation (three deals). In 2022, there were also two deals in medical devices and health care.

Antitrust Triggers for Reverse Break-Up Fees

In the 39 deals with antitrust-related reverse break-up fees, the most common triggers included a fee that was payable if:
  • Either party terminated the agreement because of a final non-appealable order prohibiting or restraining the closing under an antitrust law (and, in some cases, at termination, the antitrust approval conditions were also not satisfied). This trigger was found in 37 deals or approximately 95% of the time. In 2022, this trigger was found in 30 deals or approximately 88% of the time and, in 2021, this trigger was found in 25 deals or approximately 89% of the time.
  • Closing did not occur by the drop-dead date and certain antitrust closing conditions were not satisfied, such as if HSR or other antitrust approvals were not obtained or an injunction or other order under antitrust laws was issued, and where certain other closing conditions were satisfied or waived. This trigger was found in 38 deals or approximately 97% of the time. In 2022, this trigger was found in 33 deals or approximately 97% of the time and, in 2021, this trigger was found in 26 deals or approximately 93% of the time.
Unusual or notable antitrust triggers appeared in several deals.

Non-US Approval Triggers

As in 2022, several deals specified that the antitrust-related reverse break-up fee was payable because of a failure to obtain approval under certain specified antitrust laws outside the US.
Several deals provided that the reverse break-up fee was payable if either party terminated the merger agreement because of a failure to obtain antitrust approval outside the US by the drop-dead date, including where:
In a number of transactions, the reverse break-up fee was payable because the merger did not close by the drop-dead date and any required non-US antitrust approval set out in either a disclosure letter or disclosure schedule to the merger agreement was not obtained. These provisions were found, for example, in:
In addition, as in 2022, in several transactions the reverse break-up fee was payable if the transaction did not close by the drop-dead date and any required foreign direct investment law approvals, or required antitrust approvals, were not obtained (see the Czechoslovak Group a.s./Vista Outdoor Inc., Kohlberg Kravis Roberts & Co. L.P./CIRCOR International, Inc., and Cisco Systems, Inc./Splunk Inc. deals).

Pending US Antitrust Investigation Effect on Triggers

On August 3, 2021, the FTC announced that it had begun sending standard form letters to some merging parties alerting them that the FTC staff had not been able to complete their investigation within the HSR waiting period and that the parties closed at their own risk while the investigation remained open (an FTC Warning Letter) (see Article, FTC Warning Letter Antitrust Risk-Shifting Provisions and Standard Clause, Purchase Agreement: Antitrust Pre-Closing Warning Letter Provision).
In 2023, as was the case in 2022, several deals containing antitrust-related reverse break-up fees contained a provision relating to receipt of an FTC Warning Letter. Those deals generally provided that receipt of an FTC Warning Letter did not alone trigger payment of the reverse break-up fee by causing the failure of:
  • The HSR Act approval condition. For example, in the Pfizer Inc./Seagen Inc. deal, the fee was not payable if the HSR waiting period expired or terminated by the drop-dead date even if the parties received an FTC Warning Letter.
  • The no-legal-restraints closing condition (see the Alaska Air Group, Inc./Hawaiian Holdings, Inc. deal) or a variation of that provision requiring that there be no threatened or pending governmental antitrust proceeding that sought to restrain or prohibit the merger, obtain material damages, or require either party to divest assets or that questioned the compliance of the merger with applicable antitrust or foreign investment laws (the Abbott Laboratories/Cardiovascular Systems, Inc. deal).
  • Any closing condition. For example, in the Sycamore Partners/Chico's FAS, Inc. deal, the fee was not payable if the parties received an FTC Warning Letter unless the HSR closing condition or the no-legal-restraints condition were not satisfied because the HSR waiting period had not expired or terminated or a law, order, or other governmental action prevented closing under the HSR Act.
The Sanofi S.A./Provention Bio, Inc. and Sycamore Partners/Chico's FAS, Inc. deals each contained an unusual trigger that provided that the acquiror was required to pay the reverse break-up fee if:
  • Either party terminated the merger agreement because the tender offer or merger did not close by the drop-dead date.
  • Any governmental action was taken that prohibited or made the tender offer or the merger illegal under the HSR Act or any other antitrust law.
As in 2022, several transactions required the buyer to pay the reverse break-up fee if either party terminated the merger agreement because the merger did not close by the drop-dead date and:
  • Any voluntary agreement or timing agreement with the DOJ or the FTC not to close the merger had not expired or terminated.
  • The HSR Act waiting period had not expired or terminated.
(See, for example, the Alaska Air Group, Inc./Hawaiian Holdings, Inc., Allegro MicroSystems, Inc./Crocus Technology International Corp. CRH Americas Materials, Inc./Martin Marietta Materials, Inc., and ONEOK, Inc./Magellan Midstream Partners, L.P. deals.)

Pending Antitrust Proceeding

In 2023, several transactions contained an atypical trigger that provided the reverse break-up fee was payable if there was a pending antitrust investigation or litigation, whether in the US or elsewhere. In those deals, the reverse break-up fee was payable if either party terminated the agreement because the merger did not close by the drop-dead date and:
  • There was a pending antitrust proceeding, including a governmental investigation, of a type described in a disclosure letter seeking to enjoin, prevent, prohibit, or make the merger illegal in a specified jurisdiction, but all of the parties' other closing conditions were satisfied (the Novartis AG/Chinook Therapeutics, Inc. deal).
  • There was a pending governmental legal proceeding under antitrust law seeking an order that would prohibit or make the merger illegal (the Mars, Incorporated/Heska Corporation deal).
  • A governmental authority had brought litigation under antitrust law that would prohibit, enjoin, or make the closing illegal (the Rocket Software, Inc./OpenText Corporation deal).

Burdensome Condition Antitrust Trigger

Several deals contained antitrust-related reverse break-up fees that were payable if antitrust approvals imposed certain conditions the parties were unwilling to accept, including divestitures. For example:
  • In the Enbridge, Inc./Dominion Energy, Inc. deal, the reverse break-up fee was payable if either party terminated the purchase agreement because the acquisition did not close by the drop-dead date and HSR Act approval required the buyer, a different Enbridge entity under each separate purchase agreement, to agree to a burdensome condition, such as to hold separate, license, sell, or divest Enbridge's or its affiliates' assets or businesses, so long as certain of Enbridge's other closing conditions were satisfied.
  • In the Optum/Amedisys, Inc. deal, the reverse break-up fee was payable if either party terminated the merger agreement because the acquisition did not close by the drop-dead date and:
    • an antitrust approval was obtained with a burdensome condition, including a prior notice or approval provision or a monitor was appointed relating to a future transaction, so long as Amedisys' willful breach of its obligations under its reasonable best efforts and antitrust approvals covenant did not materially contribute to that condition; and
    • all other closing conditions were satisfied or waived.
  • In the Mars, Incorporated/Heska Corporation deal, the reverse break-up fee was payable if either party terminated the merger agreement because the acquisition did not close by the drop-dead date and HSR approval or a necessary antitrust approval was obtained with a requirement that Mars divest any of its assets, or that it divest Heska's assets that generated more than $30 million in annual revenues in a specified geographic region in 2022, or a law or order resulted in such a requirement, so long as Mars' other closing conditions were satisfied or waived.

Buyer Breach Antitrust Trigger

In several deals, the antitrust-triggered reverse break-up fee was payable if the seller or target terminated the agreement because the buyer breached its antitrust efforts covenant. For example, in:
  • The Aon plc/NFP Intermediate Holdings A Corp. deal, Randolph Acquisition Corp., the buyer, was required to pay the reverse break-up fee if the target, NFP Intermediate Holdings A Corp., terminated the merger agreement because Randolph or its parent, Aon plc, materially breached the antitrust and regulatory efforts covenant, which caused the failure of an antitrust-related closing condition, so long as other closing conditions were satisfied or waived.
  • The Skyline Champion Corporation/Regional Enterprises, LLC deal, the buyers were required to pay the reverse break-up fee if the sellers' representative terminated the purchase agreement because either the buyers or their parent entity breached the purchase agreement and the antitrust-related closing conditions were not satisfied, but all the buyers' other closing conditions were satisfied.
  • The Enbridge, Inc./Dominion Energy, Inc. deal, the buyer, a different Enbridge entity under each separate purchase agreement, was required to pay the reverse break-up fee if Dominion Energy terminated the purchase agreement because the buyer materially breached the regulatory approvals covenant, which primarily caused the failure to obtain HSR approval, as long as certain other closing conditions were satisfied.
  • The HEICO Corporation/Wencor Group, LLC deal, HEICO was required to pay the reverse break-up fee if Jazz Parent, Inc., the target, terminated the merger agreement because HEICO or its subsidiary, Magnolia MergeCo Inc., materially breached the antitrust and other regulatory approvals covenant of the merger agreement.
  • The Mizuho Financial Group, Inc./Greenhill & Co., Inc. deal, Mizuho was required to pay the reverse break-up fee if Greenhill terminated the merger agreement because Mizuho materially breached the reasonable best efforts and antitrust and regulatory approvals covenant of the merger agreement.
  • The CVS Health Corporation/Oak Street Health, Inc. deal, CVS Pharmacy, Inc., the acquiror, was required to pay the reverse break-up fee if Oak Street Health terminated the merger agreement because CVS Pharmacy, CVS Health Corporation, the ultimate parent of CVS Pharmacy, or Halo Merger Sub Corp., the merger subsidiary, breached or failed to perform any of their covenants and agreements in the antitrust and regulatory matters covenant of the merger agreement.

Target Breach Prevents Fee

In several deals, the antitrust-triggered reverse break-up fee was not payable if the seller or target breached of its obligations under the agreement or breached the consents and efforts provision of the merger agreement, which caused or principally caused the event that triggered payment of the fee, such as:
  • The failure of an antitrust-related closing condition to be satisfied.
  • The issuance of a law or order that prohibited the merger.
(See, for example, the Metropolis Technologies, Inc./SP Plus Corporation, ONEOK, Inc./Magellan Midstream Partners, L.P., and Pfizer Inc./Seagen Inc. deals.)

Deals with Tiered Antitrust-Related Reverse Break-Up Fees

In contrast to 2022, a smaller number and percentage of deals contained tiered antitrust-related reverse break-up fees. In 2023, only one of the year's 39 deals (5%) contained a tiered antitrust-related reverse break-up fee.
The J&J Ventures Gaming, LLC/Golden Route Operations, LLC and Golden Route Operations - Montana, LLC private deal contained two potential antitrust-related fees of:
  • $10 million (9.17% of the deal value).
  • $15 million (7.03% of the deal value; described as a forfeited deposit, but functions as a reverse break-up fee).
The $10 million fee and the $15 million fee were each payable if the buyer, a different J&J entity under each separate purchase agreement, or Golden Entertainment, Inc., the seller's parent, terminated the purchase agreement because either:
  • A final non-appealable order or action restrained or prohibited the acquisition under the HSR Act.
  • The transaction did not close by the drop-dead date (other than because of a material adverse change or because an ongoing pandemic shut down a material portion of the acquired business) where:
    • the HSR approval closing condition or the no-legal-restraints closing condition as it related to HSR approval were not satisfied or waived, but all of buyer's closing conditions were satisfied; and
    • the seller and Golden Entertainment were ready, willing, and able to close.
In 2022, there was a significant uptick in deals with tiered antitrust-related reverse break-up fees, where seven of the year's 34 deals (21%) contained a tiered fee. 2023 was more in line with 2021, where significantly fewer deals had tiered, antitrust-related reverse break-up fees. In 2021, two of the year's 28 deals (7%) contained a tiered fee.

Deals with Antitrust and Non-Antitrust Reverse Break-Up Fees

In 2023, three of the 39 surveyed deals (8%) contained an additional reverse break-up fee payable for circumstances not having to do with antitrust.
In two of the deals that contained an additional reverse break-up fee not relating to antitrust, the antitrust-related reverse break-up fee was higher than the non-antitrust-related reverse break-up fee, so that in:
  • The Kohlberg Kravis Roberts & Co. L.P./CIRCOR International, Inc. public deal:
    • a $125 million fee was payable for antitrust failure, including if either party terminated the merger agreement for failure to close by the drop-dead date and HSR approval or other specified antitrust approvals were not obtained, so long as all other closing conditions were satisfied or waived; and
    • a $100 million fee was payable if the acquiror, Cube BidCo, Inc., an affiliate of KKR, breached or failed to close.
  • The Xylem Inc./Evoqua Water Technologies Corp. public deal:
    • a $325 million fee was payable for antitrust failure, including if either party terminated the merger agreement for failure to close by the drop-dead date and HSR approval or other required antitrust approvals were not obtained, so long as all other closing conditions were satisfied or waived; and
    • a $225 million fee was payable for fiduciary-related concerns, such as if Xylem changed its recommendation or materially breached its no-shop.
In one of the deals that contained an additional reverse break-up fee not relating to antitrust, the antitrust-related reverse break-up fee was less than the non-antitrust-related reverse break-up fee. In the Apollo Global Management, Inc. and Abu Dhabi Investment Authority/Univar Solutions Inc. public deal:
  • A $291.69 million fee was payable for antitrust failure, including if either party terminated the merger agreement for failure to close by the drop-dead date and HSR or any other specified antitrust approvals were not obtained.
  • A $379.2 million reverse break-up fee was payable because of a buyer breach or failure to close.
In 2022, four of the 34 surveyed deals (12%) contained an additional reverse break-up fee payable for circumstances not having to do with antitrust. In 2021, four of the 28 surveyed deals (14%) contained an additional fee that did not relate to antitrust risk.

Deals with Antitrust-Related Ticking Fees

In 2023, none of the 39 deals had antitrust-related ticking fees as well as antitrust-related reverse break-up fees. However, two of the 39 deals had ticking fees that were not related to antitrust:
  • The Campbell Soup Company/Sovos Brands, Inc. public deal provided for a ticking fee that was an additional per share payment that began if the merger did not close by nine months after signing and was payable until the closing date. In that deal, the drop-dead date was a year and half post-signing.
  • The Kohlberg Kravis Roberts & Co. L.P./CIRCOR International, Inc. public deal also provided for a ticking fee that was an additional per share amount if the merger did not close before October 31, 2023 (four months after signing) that accrued on a prorated daily basis between November 1, 2023 and December 31, 2023, subject to adjustment depending on the timing of the initial filing of CIRCOR's proxy statement. In that deal, the drop-dead date was March 5, 2024, nine months after signing.
In 2022, four of the 34 deals (12%), and in 2021, two of the 28 deals (7%), had antitrust-related ticking fees as well as antitrust-related reverse break-up fees.

Interaction with Other Risk-Shifting Provisions

The reverse break-up fee is not the only mechanism that parties rely on to allocate antitrust risk. Buyers and sellers can also negotiate covenants that obligate the buyer to litigate against disapproving antitrust agencies, divest assets to gain antitrust approval, or more. Figures E, F, and G show the breakdown of hell or high water provisions, obligations to divest, and obligations to litigate negotiated in transactions with antitrust-related reverse break-up fees found in the What's Market Antitrust Risk-Shifting Database from 2021 to 2023.
Of the 39 transactions in the Antitrust Risk-Shifting Database that contained antitrust-related reverse break-up fees in 2023, the key takeaways are:
  • The number of deals and percentage of deals with a hell or high water provision (four deals or 10%), meaning a provision requiring the buyer to take any and all action to obtain antitrust approval, including litigating antitrust issues and making any required divestitures, was higher than in prior years (see Figure E).
  • The number and percentage of deals requiring the buyer to litigate antitrust issues with no express limitations has been approximately the same over the last two years, representing an increase from 2021 (see Figure F). Similarly, the number and percentage of deals stating that the buyer had no obligation to litigate antitrust issues also has been approximately the same over the last two years, representing an increase from 2021 (see Figure F). In contrast, the number and percentage of deals that did not specify the buyer's obligation to litigate antitrust issues has steadily decreased (see Figure F).
  • In 2023, there was a slight decrease in the proportion of deals where the buyer had no obligation to make divestitures of either party's assets to resolve antitrust concerns from 47% in 2022 to 41% (see Figure G).
  • In 2023, there was a significant increase in the proportion of deals that limited the buyer's obligation to divest either both parties' assets or one party's assets, short of flatly releasing the buyer from any obligation to make any divestitures to 49%, up from 38% in 2022 (see Figure G). Of the 19 deals (49%) that had a limiting provision:
    • four deals (21%) had a provision providing that the buyer would agree to certain specified divestitures (in 2022, four deals or 31% had this provision);
    • five deals (26%) had a provision limiting the buyer's obligation to divest both parties' assets or just one party's assets to a divestiture cap, such as a certain dollar value or another measure of value (in 2022, no deals had this provision);
    • nine deals (47%) had a provision stating the buyer had no obligation to make divestitures if doing so would be burdensome (in 2022, five deals or 38% had this provision);
    • five deals (26%) had a provision specifying that the buyer had no obligation to make divestitures if doing so would be materially adverse (in 2022, nine deals or 69% had this provision);
    • six deals (32%) had a provision specifying that the buyer had no obligation to make divestitures that were material (in 2022, three deals or 23% had this provision); and
    • four deals (21%) had a provision specifying that the buyer was not obligated to make divestitures of both parties' assets or just of seller's assets if doing so would have a Material Adverse Effect (MAE) (in 2022, one deal or 8% had this provision).
(See Figure G.)
In 2023, as in 2022, several deals contained provisions that specified the buyer's obligation to agree to a prior approval or prior notice provision in a consent decree with an antitrust agency (see, for example, Section 7.2(a) in the AstraZeneca Finance and Holdings Inc./Icosavax, Inc. deal, Section 6.2(a) in the AbbVie Inc./Cerevel Therapeutics Holdings, Inc. deal, Section 6.3(c) in the Biogen Inc./Reata Pharmaceuticals, Inc. deal, and Sections 6.3(d) and 9.3(h) in the Optum/Amedisys, Inc. deal). For more on prior notice and prior approval provisions, see Article, Prior Approval and Prior Notice Antitrust Risk-Shifting Provisions.
For more information on antitrust risk-shifting provisions, including when to use those provisions in a purchase agreement and how to structure those provisions, see Antitrust Risk-Shifting Toolkit. For a sample hell or high water provision that can be used in a purchase agreement, see Standard Clause, Purchase Agreement: Hell or High Water Clause. For a standard clause limiting divestitures, see Standard Clause, Purchase Agreement: Limits on Potential Divestitures.
Image 14 within Antitrust-Related Reverse Break-Up Fees in 2023​

Image 15 within Antitrust-Related Reverse Break-Up Fees in 2023​
Image 16 within Antitrust-Related Reverse Break-Up Fees in 2023​

Drop-Dead Date Extensions in Deals with Antitrust-Related Reverse Break-Up Fees

In this year's study, 87% of deals (34 of 39 deals) contained antitrust-related extensions to the drop-dead date. These provisions generally provided that if all closing conditions were satisfied by the drop-dead date other than receipt of antitrust approval, including HSR approval, either party was able to extend that date to the date specified in the agreement (see, for example, Standard Clause, Purchase Agreement: Drop-Dead Date Extension for Antitrust Approval). This compares to 85% (29 of 34 deals) in 2022 and 79% (22 of 28 deals) in 2021 that contained antitrust-related extensions to the drop-dead date.
Of the 34 deals in 2023 that contained antitrust-related extensions to the drop-dead date:
  • Twenty-seven deals provided for an extension to the drop-dead date that was more than one year after signing.
  • Seven deals provided for an extension to the drop-dead date to a date that was one year or less after signing.
Of these 34 deals in 2023, 59% (20 deals) provided for a second extension if the antitrust approval was not received by the initial extended date. In 2022, 59% (17 of 29 deals) and in 2021, 39% (11 of 28 deals), provided for a second extension if the antitrust approval was not received by the initial extended date.
Of the 34 deals in 2023 containing drop-dead date extensions with an antitrust-related trigger:
Three of the 34 deals (9%) in 2023 containing drop-dead date extensions also provided for an additional extension to the drop-dead date because of a government shutdown, of up to 2 months (the Sycamore Partners/Chico's FAS, Inc. deal), up to 3 months (the Metropolis Technologies, Inc./SP Plus Corporation deal), and up to 6 months (the Alaska Air Group, Inc./Hawaiian Holdings, Inc. deal).