Mergers and acquisitions present promising opportunities for businesses looking to grow and expand within their industries, but they are also serious commitments that do not simply occur overnight. Companies involved in a merger must prepare for the corporate restructuring and make accurate projections for what the future holds, all of which might entail significant time investment over the course of multiple months.
It is understandable, then, that you might feel left out in the cold if the seller backs out of a planned merger. By understanding your options for legal action, you may be able to recover due compensation for a sunken M&A investment.
Negotiate a termination fee
Corporate financial institute defines a termination fee, or breakup fee, as what a seller pays upon backing out of an agreed-upon merger or acquisition. A seller typically agrees to a provisioned termination fee outlined in an initial letter of intent upon contractually signing an agreement to merge with the buyer. The seller is then under the obligation to pay the fee should they decide to back out of the deal, such as when another bidder comes forth with a more favorable offer.
Pursue your due compensation
If a seller that backs out of a merger refuses to pay the agreed-upon termination fee or believes they are exempt from doing so, it may be necessary to pursue further legal action. Your commercial litigation team can help you secure the full amount outlined in your termination fee agreement by taking the matter to court if necessary.
Though your company stands to suffer a net loss if a lengthy merging process falls through at the last moment, securing a termination fee can bring you close to breaking even. A seller that neglects to pay this breakup fee is subject to courtroom litigation.
Corporate Finance Institute. (2023, January 15). Breakup Fee.