A break fee is a sum contractually payable by a party that withdraws from a merger or acquisition after signing a preliminary agreement, to compensate the other party for the costs, time and opportunity cost incurred. The reverse break fee is the variant payable by the buyer.

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It secures the parties' commitment and offsets the risk of a walk-away, particularly in competitive processes or deals subject to conditions (financing, regulatory approval). Its amount is generally between 1% and 3% of the transaction value.

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Example: in the sale of an SME valued at CHF 20.0 million, the buyer negotiates exclusivity with a break fee of CHF 400,000 (2%) payable if it withdraws without legitimate cause after due diligence, covering the seller's costs and the cost of restarting the process.

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At Hectelion, we calibrate break fee clauses in our sell-side mandates to protect our clients against the risk of a late collapse of negotiations.