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:

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:

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 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:

In 2019, the database found 29 deals that contained antitrust-related reverse break-up fees. For each of those 29 deals, this Article reviews and discusses:

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 2018, see Article, Antitrust-Related Reverse Break-Up Fees in 2018, and in 2017, see Article, Antitrust-Related Reverse Break-Up Fees in 2017.

Figure A illustrates the value of the antitrust-related reverse break-up fees for all 29 public and private deals in the Antitrust Risk-Shifting Database in 2019. The figure shows that of those fees:

Two deals are included twice in Figure A (resulting in a total of 35 entries) because they each contained at least two antitrust-related reverse break-up fees:

(See Deals with Tiered Antitrust-Related Reverse Break-Up Fees.)

The largest antitrust-related reverse break-up fees of 2019 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 2019 deals in the database was 5.08% of respective deal value, down from 6.06% of the respective deal value in 2018, and up from 4.23% in 2017. The average fee in public deals in the database in 2019 was 4.67%. In 2018, the average fee was 4.89%. In 2019, we used deal value rather than equity value when determining fees for all public deals, which impacted the fee size of five deals. Similarly, in 2018, we used deal value rather than equity value when determining the fees for all public deals, which impacted the fee size of eight deals.

A total of nine (26%) of the year's 35 reverse break-up fees payable for antitrust failure were set at 6% or more of the respective deal value. In 2018, a higher number and percentage of deals contained fees set at 6% or more of respective deal value (fourteen deals or 30% of the year's 46 reverse break-up fees payable for antitrust failure). In 2017, a similar number and percentage of deals as found in 2019 contained fees set at 6% or more of the respective deal value. In 2017, a total of eight (20%) out of the year's 40 reverse break-up fees payable for antitrust failure.

Figure B illustrates the value of the antitrust-related reverse break-up fees in the 16 public mergers covered in the Antitrust Risk-Shifting Database in 2019. Of these:

Of the 16 public M&A deals containing antitrust-related reverse break-up fees, the largest:

Figure B indicates that fees of all percentage amounts except those priced below 3% were observed in deals large and small. However, once deals reached the mega-sized bracket of $5 billion or more, reverse break-up fees payable for antitrust failure showed up only in the 4% to 6% of deal value and the 3% to 4% of deal value brackets. This represented a change from 2018, and more closely represented the spread in 2017. In 2018, four of the ten reverse break-up fees in deals valued at $5 billion or more were priced at 6% or more of deal value. In contrast, in 2017, there was no fee in the 6% or more category for deals valued at $5 billion or more, but fees appeared in the 4% to 6% and the 3% to 4% categories.

In the $1 billion to $5 billion category, the percentage of antitrust-related reverse break-up fees priced at 6% or more of the deal's value decreased significantly relative to 2018 and more closely resembled the spread in 2017. In 2019, only one (approximately 17%) of the six reverse break-up fees payable for antitrust failure in the $1 billion to $5 billion category was priced at 6% or more of the deal's value. In that same category:

In smaller public deals, buyers and target companies tend to use relatively larger antitrust-triggered reverse break-up fees. In 2019, five of the seven fees (71%) in the $100 million to $500 million and $500 million to $1 billion were at least 4% of deal value. This represents an increase in fees of 4% or more of deal value in the $100 million to $500 million and $500 million to $1 billion categories over previous years. In these categories:

The average size of antitrust-related reverse break-up fees in public M&A deals in 2019, as calculated from the 16 public M&A deals in the study sample, was approximately 4.67% of deal value. The average fee size decreased from the 2018 average of 4.89% of the respective deal's value, which was an increase from the 2017 average of 4.05% of the respective deal's equity value.

In 2019 and 2018, we used deal value rather than equity value when determining the fees for all public deals, which impacted the fee size of five deals in 2019 and eight deals in 2018 where the deal consideration included cash and stock.

Figure C includes the value of the antitrust-related reverse break-up fees in the 13 private deals in the Antitrust Risk-Shifting Database in 2019. Of these:

Of the 13 private deals containing antitrust-related reverse break-up fees, the largest:

In 2019, the spread of reverse break-up fees across deal-size brackets in private acquisition agreements is similar to that seen in public M&A deals except in deals valued at greater than $5 billion. In 2019, no antitrust-related reverse break-up fees appeared in private deals valued at greater than $5 billion. In 2018, two fees were observed in private deals in the $5 billion or more category.

In 2019, only one fee priced below 3% was observed. This fee was observed in the smallest deal-size bracket of $100 million to $500 million (the PetIQ, Inc./Sergeant's Pet Care Products, Inc. deal). Similarly, in 2018, fees of up to 3% of deal value were also observed in the $100 million to $500 million bracket, which was not the case in 2017. In previous years, fees in this category were also observed in larger deals:

Six fees of 6% of the deal value or higher were observed in the thirteen private deals in 2019 (46%), with only one deal valued at $1 billion or more (the PBF Energy Inc./Equilon Enterprises LLC d/b/a Shell Oil Products US deal) and the remainder valued from $100 to $500 million. While this was a higher percentage of fees of 6% of the deal value or higher than in previous years, it represents a similar breakdown in deal value in this category as in previous years:

Figure D illustrates the target company's industry for the 29 deals in the Antitrust Risk-Shifting Database that contained antitrust-related reverse break-up fees.

There are 29 industries reflected in Figure D.

Within the Antitrust Risk-Shifting Database, those deals in 2019 that contained antitrust-related reverse break-up fees fell mainly within the following industries:

The remainder of deals were spread across a wide variety of industries in 2019.

This represents a change in the mix of industries compared to previous years.

For example, in 2018, there were eight deals with antitrust-related reverse break-up fees in the service industry and two deals each in the construction and materials and travel and leisure industries.

Several industries that comprised the bulk of the deals in 2018 or 2017 saw fewer relevant deals in 2019. For example, the number of deals with antitrust-related reverse break-up fees for:

In the 29 deals with antitrust-related reverse break-up fees, the most common triggers included a fee that was payable if:

Unique or notable antitrust triggers appeared in several deals.

For example, as in 2018, 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:

Similarly, several deals specified that the antitrust-related reverse break-up fee was payable because of a final non-appealable order under non-US antitrust laws preventing approval of the transaction in the jurisdiction. For example:

The Concrete Pumping Holdings, Inc./Capital Pumping, LP, ACS Equipment, LP, and MC Services, LLC deal contained a unique trigger providing that the reverse break-up fee was payable if the sellers terminated the purchase agreement because the acquisition did not close within 105 days of signing if a governmental authority informed Concrete Pumping Holdings, Inc. that it would review or request additional information relating to the parties' filings or submissions, unless the targets' or sellers' willful breach primarily caused the failure to close.

Similarly, in PetIQ, Inc./Sergeant's Pet Care Products, Inc., the reverse break-up fee was payable if the parties mutually terminated the agreement because they agreed, after consulting with antitrust counsel, that there was no reasonable likelihood of obtaining HSR or other antitrust law approval by the drop-dead date.

Several deals contained antitrust-related reverse break-up fees that were payable if the buyer failed or refused to take certain action to obtain antitrust approval, including making specific divestitures:

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 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:

Two of the year's 29 deals (7%) contained a tiered antitrust-related reverse break-up fee, including:

In 2018, five of the deals (13%) contained tiered antitrust-related reverse break-up fees. In 2017, two of the deals (5%) contained tiered antitrust-related reverse break-up fees.

The Alexion Pharmaceuticals, Inc./Achillion Pharmaceuticals, Inc. public merger deal contained a tiered antitrust-related fee that provided that Alexion would pay a different fee depending on the date the merger agreement was terminated. The merger agreement provided that if either party terminated the deal:

Alexion was required to pay the antitrust-related fee if:

The Century Casinos, Inc./Eldorado Resorts, Inc. private deal contained a tiered antitrust-related fee that provided that Century Casinos was required to pay:

Three of the 29 surveyed deals (10%) contained an additional reverse break-up fee payable for circumstances not having to do with antitrust. In one deal, the antitrust-related reverse break-up fee was substantially higher than the non-antitrust-related reverse break-up fee.

The Eldorado Resorts, Inc./Caesars Entertainment Corporation deal contained two reverse break-up fees, only one of which was payable for antitrust reasons. The agreement in that deal provided for:

The Centene Corporation and WellCare Health Plans, Inc. deal contained five reverse break-up fees, only one of which was payable for antitrust reasons. The antitrust-related fee was less than three of the other four non-antitrust-related reverse break-up fees (one lower fee of $256,156,772 was payable for failure to obtain stockholder approval). In that deal:

In the Performance Food Group Company/Reinhart Foodservice, L.L.C. deal, the antitrust-related fee was less than the non-antitrust-related reverse break-up fee. In that deal:

In 2018, six of the 39 surveyed deals (15%) contained an additional fee that did not relate to antitrust risk. In 2017, eight of the 38 surveyed deals (21%) contained an additional fee that did not relate to antitrust risk.

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. Of the 29 transactions in the Antitrust Risk-Shifting Database that contained antitrust-related reverse break-up fees in 2019:

(See Figure G.)

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.

In this year's study, 86% (25 of 29 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 extend that date to the date specified in the agreement. This compares to 77% (30 of 39 deals) in the 2018 study and 74% (28 of 38 deals) in the 2017 study that contained antitrust-related extensions to the drop-dead date.

In this year's study, 45% (13 of 29 deals) provided for an initial drop-dead date extension and a second extension if the antitrust approval was not received by the initial extended date. In 2018, 23% (9 of 39 deals) and, in 2017, 13% (5 of 38 deals) provided for an initial drop-dead date extension and a second extension if the antitrust approval was not received by the initial extended date.

Of the 25 deals containing drop-dead date extensions with an antitrust-related trigger:

A table providing the information for each transaction surveyed in this year's study can be found here.