December 20, 2017

Survey: Termination & Reverse Termination Fees

Here’s the latest edition of Houlihan Lokey’s annual termination fee study.  The study reviewed 183 transactions involving U.S. company targets and involving at least $50 million in transaction value announced during 2016.

The study focused on termination fees both as a percentage of “transaction value” and “enterprise value.” Transaction value is the total value of consideration paid by an acquirer, and is generally equivalent to “equity value.” Enterprise value is the number of outstanding shares multiplied by the per-share offer price, plus the cost to acquire convertible securities, debt, and preferred equity, less cash and marketable securities.

Some of the highlights include:

– Termination fees as a percentage of transaction value during 2016 ranged from 0.8% to 5.1%, with a mean of 3.2% and median of 3.3%.  The mean & median fees were identical with those reported in 2015, and nearly the same as reported in 2014 (3.2% mean & 3.3% median).

– Termination fees as a percentage of enterprise value were almost as steady. In 2016, the mean was 3.1% of enterprise value while the median was 3.2%.  The mean & median fees were both 3.2% of enterprise value in 2015.

– Reverse termination fees as a percentage of transaction value varied depending on whether the deal involved a strategic or a financial buyer.  In 2016, the median fee for strategic buyers was 3.6% for strategic buyers and 5.8% for financial buyers.  The median fees for 2015 were 4.0% for strategic buyers and 6.1% for financial buyers.

– Median reverse termination fees as a percentage of enterprise value in 2016 were 2.9% for strategic buyers and 4.5% for financial buyers.  In 2015, the median fee for strategic buyers was 3.7% and the median fee for strategic buyers was 6.5%.

John Jenkins