When are break fees appropriate in the context of M&A transactions? And what are the tax consequences of such fees for both parties?
When UK private companies are bought and sold it is common for buyers and sellers to enter into exclusivity agreements at a stage in the process when an outline commercial agreement has been reached. These agreements will typically prevent the sellers from engaging with alternative buyers for a given period of time (and may impose financial penalties such as break fees if they are breached) such that the buyer can incur the material costs associated with bringing a deal to a close without fear of being gazumped.
This approach is not possible in the context of a UK public company takeover where even after a target’s board has decided in principle to recommend a...
