DealLawyers.com Blog

Here’s the latest edition of Houlihan Lokey’s annual termination fee study. The study reviewed 185 transactions involving U.S. company targets and involving at least $50 million in transaction value announced during 2017.

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.

Here are some of the highlights:

– Termination fees as a percentage of transaction value during 2017 ranged from 0.5% to 6.7%, with a mean of 2.8% and median of 3.0%. The mean & median fees in 2016 were 3.2% and 3.3%, respectively.

– Mean & median termination fees as a percentage of enterprise value during 2017 were 2.9% and 2.8%, respectively. In 2016, the mean was 3.1% of enterprise value while the median was 3.2%.

– Reverse termination fees as a percentage of transaction value varied depending on whether the deal involved a strategic or a financial buyer. In 2017, the median fee was 3.1% for strategic buyers and 4.7% for financial buyers. In 2016, the median fee for strategic buyers was 3.6% for strategic buyers and 5.8% for financial buyers.

– Median reverse termination fees as a percentage of enterprise value in 2017 were 2.9% for strategic buyers and 4.8% for financial buyers. In 2016, the median fee was 2.9% for strategic buyers and 4.5% for financial buyers.

– John Jenkins